This is the next installment of a weekly, exclusive, series of technical analyses that DeFinity is proud to share with its community.
The analysis is completed by renowned, experienced financial analyst and successful global podcaster, Paul Rodriguez.
Paul Rodriguez lectured at the City University in London on the subject of Technical Analysis whilst working as an award winning analyst at NatWest Global Financial Markets (Now RBS) in the 1990’s, pioneering and promoting the education and use of technical analysis to City professionals and private investors. Paul set up Think Trading to continue that education and consultancy having appeared frequently on financial news channels seeking his views. He set up the State of The Markets Podcast with fund Manager Tim Price three years ago, which consistently tops the top 50 UK business podcasts and has a global audience. He provides bespoke research and consultancy to market-leading firms.
A delayed market reaction to the expectation that the Fed will not raise rates as quickly from September has seen a bounce in equities and other risk-on assets (once again the efficient market hypothesis is not reflective of practical application). Yields eased lower and the drop in the dollar has seen gold, silver, copper, and BTC rebound (despite the patchy correlation with the latter). We are at the beginning of the end of the US dollar rally and the yield rise for this phase, but a near-term risk-on rally (which could be decent enough) will most likely falter and by the end of June and correct below the recent lows. Of course, there is the possibility we have already seen the low and the major rally has begun. There are some good signs of this but it is still equivocal. A risk-on this could just draw the bulls in early only to cause a larger correction to fresh lows further out. We remain cautious because the eventual rally will be of a magnitude that joining later would still provide good risk/reward parameters.
Because these lows have the potential to be significant long-term opportunities, they are also likely to be mirrored by a high degree of bearish sentiment — this is to be expected with this degree of correction. Risk reward will point to a major trend change as inflation bolsters equities, and commodities and sends the US dollar into a tailspin. For the moment we will bide our time as the final DXY index targets are at 108. The recent correction has entered a support zone that should hold to resume the USD bull trend. If this fails to stem the decline, it is still not enough to completely reverse tact at this stage.
Support between 100.67 and 101.50 (trendline/top of the parallel channel/ medium term m.a.) continues to be an area of interest and although we have seen a short-term reaction, we may see a deeper correction to 100.67 and at the outside 100 before the bullish trend resumes. The correction has allowed for the RSI to approach oversold territory, although in a strong trend it would be more characteristic for it to turn in the 30–50 zone.
US 10 Year Yield
Yields are consolidating and whilst the trend has turned upwards, its move is still ahead of the 2.49% retracement zone. Support also exists at 2.64% (m.a.) with the outside of the range at 2.25%. Once the consolidation is over we look for a breach of 3.25% resistance for 3.60% initially, although this will be approaching the final phase ahead of a major correction.
We featured copper last week because it has been in a long-term consolidation and normally this is a precursor to a correction. The main trigger level to confirm this at 3.96 was not breached however and the market has squeezed back into the range. The rate of appreciation stands out against previous price action but is not enough to move from a neutral medium term. Whilst we are long-term bulls we need evidence of a break-out and this occurs above 5.04 — or a corrective phase term move below 3.96. Timewise the market is unlikely to tread water for too much longer.
Lumber reflects the outlook for the US housing market and whilst the big picture chart has been range-bound for some time, the extent has been significant. Rising yields and energy are causing demand destruction and we expect the Fed to react to this, despite what they have said recently. It may take a move towards 454 (any break of this zone risks a deeper correction to 320) for housing data to reflect this.
Another test of 1700 has held, raising the importance of this already significant support zone. The stop build-up below will be massive so bears will want to trigger them soon, and for good reason. The clock is ticking and unless it can be breached this week, a move back towards 2225 will be on the cards. ETH has been sidelined during the risk-on rally and if BTC starts squeezing over 33k, this could snap higher. Whilst we remain bullish long term, we are looking for evidence of a final low. There isn’t enough to justify calling the low just yet.
Whip-sawed price action may have alleviated the short-term bearish condition, but has not removed it. If 28547 can hold this week, the squeeze should extend to the medium-term m.a. at 36,262 where selling pressure should resume. Any two day close below 28,547 would open the way for 22,067 and 19,666, but accumulation will begin in this phase as it would be potentially the final phase of the bear trend from 69,000.
The risk of a move towards 22,067 and 19,666 remains should we see a two-day close below 28,546. Following nine down weeks of price action, two (or three) up-weeks is not unwarranted. We can see the extent of the oversold condition by the RSI (rare dip below 30 here) which will be eased by some ranging price action and the extent to which the market bounces this week. A rally beyond 36k looks unlikely at this stage — hence we could be looking at a squeeze prior to a drop.
This report is superficial in nature and may contain errors. No warranty is given to the accuracy of the data or text and any reader must understand that it should not in anyway form part of an investment process — that is reserved for that individual/business and an investment professional. No positions should be taken, exited or otherwise considered on the basis of this research. This is a condition of reading this document. The main function is of education into how different chart patterns might indicate a future trend (or lack thereof) and not for the purposes of speculation or investment.
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