Equities Q3 2022 Technical Forecast: Rebound then Lower Again

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

At one point last quarter the U.S. stock market was off by about 25%, with all losses coming in the first half of the year. Stocks became oversold with sentiment nose-diving, and on that it appears we are in for a bit of a recovery. However, all that is expected is just that – a recovery rally amidst a broad bear market.

S&P 500

The rally could be sharp and bring back a fair amount of optimism before all is said and done. It will be key for S&P 500 futures to hold onto the recent lows at 3639, and if broken it will need to be a short-lived event, if the recovery outlook is to maintain.

On the top-side, a rally could develop towards 4200, but not likely to exceed it by much given the bigger picture bear market outlook. Countertrend moves can be tricky when trying to play momentum, so taking a pullback approach (buy-the-dip) may be the most prudent way to participate.

S&P 500 Weekly Chart

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

Chart created with TradingView

DAX 40

At one point last quarter the German benchmark was holding up much better than its US counterpart, but that outlook quickly changed towards the end of the last leg lower. The DAX is likely to recover, but it could be a bit more sluggish than the US index.

Watch support via the trend-line off the March 2020 low. A firm breakdown below 12965 could have the earlier-year low in play. On the top-side, watch the trend-line off the January peak, and after that resistance clocks in from just over 14700 up to 14925.

DAX 40 Weekly Chart

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

Chart created with TradingView

Nikkei 225

The Nikkei is also looking like it could be on path to a sluggish move higher despite having generally been stronger than the US market. A bounce could have the 200-day at 27754 (& declining) and trend-line off the 2021 high in play as strong, confluent resistance. This could be a spot to look for the Nikkei to roll over. On the downside the March 2020 trend-line is in the area as support, followed by the yearly low at 24681.

Nikkei 225 Weekly Chart

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

Chart created with TradingView

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

The bullish USD trend turned a year-old last month. And it can be difficult to put into scope everything that’s happened since then but, just last May, DXY was grinding at the same 90 level that had held the lows at the start of the year.

Sentiment at the time still felt overwhelmingly bearish in the Greenback. Covid numbers were still being counted and there was fear that the pandemic was about to rear its ugly head again, which only helped to keep the Fed in an ultra-dovish position. Sure, inflation had started to tick up: In May of last year, CPI had just been released for April at the tune of 4.2%. But – this was the first print over 3% and only the second over the Fed’s 2% target. The bank wasn’t worried and continued to shrug off the risk of higher rates of inflation as transitory.

But its during last Q3 when this theme really started to come to life. In July 2021, inflation data for June was released to the tune of 5.4% and the same number printed a month later, starting to establish a trend. By the time we got to September, the Fed was becoming more responsive, and it was the September FOMC rate decision in which the bank began to forecast actual rate hikes in response to that inflation, with the first expected to land at some point in 2022. The US Dollar broke out at that point and hasn’t really looked back since. I’m illustrating this period of time on the below chart with a blue box.

US Dollar Index (DXY) – Weekly Timeframe (June 2018 to Present)

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

Source: TradingView; Prepared by James Stanley

USD Since the Break

Taking a step back to the monthly chart of the USD and it becomes clear that the currency spent much of the past seven years in a range-bound environment.

To be sure, there’s a fundamental drive there, often with the inter-play between the Euro and the US Dollar. But, given the trajectory of the shorter-term trend that’s now projecting a tangle with resistance in the not-too-distant future, this zone is worthy of a look.

There’s been a tendency for resistance to show above the 100 level over the past seven years and, bigger picture, this has been problematic pretty much ever since the Euro came into circulation. But now that we have such divergence between the US and European economy, the door may be open for a topside break.

For upcoming resistance, the 100 psychological level looms large and there’s a Fibonacci level at 101.80. Beyond that we have the 20-year high plotted around 103.54. A breach of that brings fresh multi-decade highs to the USD and I think this is a possibility for 2022 trade, although I’d anticipate it to be more of a second-half type of theme. At least I hope that it is, because if this develops faster it will send a very negative signal about global growth.

Dollar Index (DXY) – Monthly Timeframe (1998- Present)

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

Source: TradingView; Prepared by James Stanley

Q3 2022 Forecast for the US Dollar: Bullish

I’m keeping the technical forecast for the US Dollar as bullish for Q3. There’s simply no sign yet that the trend is over and until there are more developments in Europe towards higher rates, it’s difficult to justify the expectation of significant change in this trend.

From a technical perspective, the response to the pullback in late-May is pretty much what one would want to see for bullish continuation scenarios. The pullback was almost a perfect 23.6% retracement, which was quickly followed by a push up to a fresh high. That fresh high printed at 105.79 and that level presents additional breakout opportunity if it’s traded through.

Dollar Index (DXY) – Daily Timeframe (2021- Present)

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

Source: TradingView; Prepared by James Stanley

British Pound Q3 Technical Forecast: Can Sterling Recover or Will Bears Remain in Control?

British Pound Q3 Technical Forecast: Can Sterling Recover or Will Bears Remain in Control?

GBP/USD has remained humbled since the latter part of last year as the pair continues to be influenced by geopolitics.

For the safe-haven US dollar, an aggressive US Federal Reserve and tighter monetary policy has favored the greenback, allowing it to appreciate against its major counterparts, including the Sterling.

From a technical standpoint, the downward trajectory of GBP/USD has remained intact, forcing the pair to test a critical zone of support around the key psychological level of 1.22.

After falling from the April 2018 high of 1.437, the onset of the coronavirus pandemic and subsequent global lockdowns, drove GBP/USD to a low of 1.141 in March 2020 before rebounding back above the 1.22 handle. Just over two-years later and price action has found itself revisiting the same zone with both buyers and sellers desperate to break free from the shackles of this range.

GBP/USD Monthly Chart

British Pound Q3 Technical Forecast: Can Sterling Recover or Will Bears Remain in Control?

Source: TradingView

Meanwhile, the daily chart further illustrates the manner in which Fibonacci levels from historical moves have formed prominent zones of confluency, holding both bulls and bears at bay.

Rising US recession fears have recently weighed on US dollar strength, allowing GBP/USD to climb back towards the next big level of resistance at 1.23. A confirmed break higher would pave the way for the a renewed test of the 1.24 level.

The recent formation of low-bodied candles are suggestive of indecision,and a break of trendline resistance and the above-mentioned levels may provide bulls the opportunity to gain traction throughout the quarter, capping any further downside for cable.

GBP/USD Daily Chart

British Pound Q3 Technical Forecast: Can Sterling Recover or Will Bears Remain in Control?

Source: TradingView

However, if the downtrend persists, a break of 1.200 and of 1.9347 (the June 2022 low) may result in an increase in bearish momentum, opening the door for a re-test of the March 2020 low at 1.141.

EUR/USD Forecast: Bounces From Major Support Level

EUR/USD Forecast: Bounces From Major Support Level

The Euro has bounced from a major support level to show signs of life yet again. By doing so, the market looks as if it is ready to try to recover, but there are a lot of noisy areas above that could cause problems.

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When I look at this chart, it’s obvious that the 1.04 level is supported, but I would also point out that the 1.06 level is likely to be significant resistance. Furthermore, the 50 Day EMA is just above there and is falling, so that should offer a bit of dynamic resistance as well. In that scenario, I fully anticipate that the market will continue to find a lot of noise between the two levels, as we try to sort out whether or not the Euro can save itself. I am of the camp that I do not believe it will.

The Federal Reserve is going to continue to tighten monetary conditions, which of course strengthens the US dollar overall. Furthermore, we have to keep in mind that the overall trend is to the downside, in trends in the Forex market don’t change very often. You continue to fade rallies in this market, you continue to get paid. The 1.04 level is stubborn, but you could have said the same thing about the 1.12 level, and perhaps even the 1.08 level.

The ECB is going to tighten its monetary policy, but it is so far behind the curve in relation to the US central bank that the trajectory still remains lower. Furthermore, if we are going to get a bit of a global slowdown, the US dollar suddenly becomes much more desirable, because it becomes a “safety asset.”

If we do break above the 1.06 level, then I think the 1.08 level is going to be very difficult to break above. Quite frankly, I think this is the type of market where you look for a rally that you can fade. That’s probably what I will be doing as I close the book this weekend, but I would like to see some type of exhaustion that I could start selling into. If we do break down below the 1.04 level, then the 1.02 level is targeted, followed by the parity level. That being said, the Euro is almost always choppy.

EURUSD

S&P 500 Forecast: Volatility Through End-of-Month Rebalancing

S&P 500 Forecast: Volatility Through End-of-Month Rebalancing

The S&P 500 has been all over the place during the trading session on Thursday, as it was the end of the month and of course, rebalancing occurs. That being said, it really doesn’t change anything from a fundamental standpoint other than cause people headaches. If you were trading the index during the trading session on Thursday, you’ll most certainly get chopped up during the day, because the swings were pretty wild. The NASDAQ 100 was even worse as per usual.

That being said, it looks like we may be due for a short-term bounce. Short-term bounce should be a nice selling opportunity yet again, because the market is in such a bearish place, and there’s really nothing to suggest that the economy is going to turn around. The 4000 level has the 50 Day EMA sitting at it, but I think there’s a lot of resistance at the 3950 level as well. I’m looking for some type of recovery here, so that I can start selling again as the trend is so firmly ensconced in the market.

The Federal Reserve is going to tighten until something breaks, and that something might just well be the S&P 500. Truthfully, it’s probably going to be found in the credit markets, but that’s not something most retail traders have access to. If we break down below the bottom of the candlestick for the trading session on Thursday, then we will almost certainly go looking toward the bottom again. I don’t like stocks, regardless of what country they come from. All indices look very bearish to me at the moment, because even with the Bank of Japan loosening its monetary policy, even the Nikkei 225 is struggling to gain.

This is the first time a lot of traders have dealt with a tightening cycle, and most certainly the first time 95% of them have had to deal with inflation. This is part of the problem right now because so many people have no idea what to do with themselves. We will continue to see volatility and choppy behavior going forward, which generally leads to lower pricing over the longer term. After all, investors don’t like shaky markets, so that does take a lot of money out of the equation.

S&P

GBP/USD Forecast: Attempting to Recover

GBP/USD Forecast: Attempting to Recover

The British pound has rallied a bit during the trading session on Thursday, reaching near the 1.22 level. This is an area previously has been supported, so I would look at this through the prism of a market that has broken through support, and now is trying to test that level for resistance. The trend is most certainly to the downside, so I don’t necessarily believe that we are going to see a massive change anytime soon. Even if we break above the 1.22 handle, we still have a long way to go before we can start talking about buying.

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Trading is risky. While EURUSD and GBPUSD spreads will be at zero for most of the time on the ECN account, FXTM cannot guarantee spreads will remain at zero at all times.

The 1.24 level is the next major resistance barrier, and now we are starting to see the 50 Day EMA reach toward that level. That provides a couple of different reasons why the sellers may start to get bearish again, not to mention the fact that the Federal Reserve remains extraordinarily hawkish with its monetary policy. In fact, it’s almost impossible to imagine the US dollar suddenly reversing course without the Federal Reserve changing its tune. The inflation numbers in the United States were slightly better than anticipated during the day, but not enough to change the trajectory of the Federal Reserve.

Looking at the charts, the 1.26 level continues to be a major resistance barrier, and if we were to break above there then we could get a little bit of a relief rally going. At that point, I would anticipate that the market could threaten the 1.30 handle. It’s not until we break above there on a daily close that I think the trend will have changed. Because of that, I’m not necessarily looking for buying opportunities and I look at rallies with suspicion.

Going forward, it would not surprise me at all to see the British pound trade below the 1.20 level, perhaps trying to get down to the 1.18 level which has been important in the past. The market will continue to follow central-bank divergence, which right now heavily favors the Americans. Ultimately, all central banks will probably have to start listening to monetary policy again, but for right now, Jerome Powell and company are pretending like the nation can afford higher rates to pay for profligate spending. As long as that’s the case, you have to believe that the US dollar will continue to be stronger.

GBPUSD

WTI Crude Oil Forecast: Breaks Through Minor Support

WTI Crude Oil Forecast: Breaks Through Minor Support

The West Texas Intermediate Crude Oil market has fallen during trading on Thursday to break through a trendline. That being said, there is also a much more important trend line underneath here, so I think we have a huge fight on our hands. Crude oil is a market that I don’t like putting a lot of money into right now, because there are so many different things pushing it around at the moment.

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One thing that is worth paying attention to would be the Strategic Petroleum Reserve in the United States dropping down to the lowest level since 1986. This does suggest that sooner or later the Americans will start buying oil to refill that deficit, so that could be a longer term bullish driver. However, at the same time you have to wonder whether or not the demand will continue to stay strong as there has been so much in the way of destruction of the economy. Commodities across the board have been getting hammered as of late, so it is worth noting that market participants have been selling copper, natural gas, and even agricultural futures. This suggests that the market is pricing in a rather steep recession.

A recession does not typically help the price of oil. The Atlanta Federal Reserve suggests that the Q2 numbers coming out of the United States are negative, and if that were to be realized, it would be confirmation of a recession in the US.

That being said, China is still in the midst of trying to reopen, although its silly Covid policy seems to be keeping that from being a full-time issue. That does away with the market, but I think given enough time we will see crude oil attempt to make a recovery. If we were to break down below the $100 level, that could change a lot of things, perhaps in the market much lower. The $115 level above seems to be significant resistance, so if we are between those two levels, I suggest that it could be very choppy, and therefore you would need to be very cautious with your position sizing. At this point, it’s probably easier just to ignore this market for the time being, as there is so much noise out there.

Crude oil

NASDAQ 100 Forecast: Wild Ride Ahead

NASDAQ 100 Forecast: Wild Ride Ahead

The NASDAQ 100 has gone back and forth during the bulk of the trading session on Thursday, which should not be a huge surprise considering that it was the end of the month’s rebalancing. Nothing has changed from a fundamental standpoint, so a lot of what we had seen during the trading session should be thought of as noise. That being said, the market could very well get a little bit of a bounce heading into the weekend, but I would anticipate that the 12,000 level is probably a bit too much to overcome.

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When I look at this chart, I recognize that the 50 Day EMA above will continue to cause issues, and now that it is approaching the 12,000 level, I think that the previous selling and the indicator may come into the picture to cause even more downward pressure. If we were to break above there, then the NASDAQ 100 could very well go looking to reach the 13,000 level, where I see even more structural resistance.

On the other hand, if we were to break down below the 11,000 level, that could open up the trap door to send the NASDAQ 100 down to the 10,000 level given enough time. I do think that this is a market that will continue to get hammered from time to time due to interest rate fluctuations, but right now I just don’t see any reason to chase this market to the upside. This still remains a “fade the rallies” type of market, just as the rest of the indices do. Unless the Federal Reserve changes its tune completely, it’s difficult to envision this market truly picking up its feet and kicking off a new uptrend.

At this point, I think we continue to see a lot of fear and concern out there, and of course, as per usual, you will have to pay attention to the “generals” when it comes to the NASDAQ 100. That’s Tesla, Facebook (Meta), Apple, Amazon, and so on. Unless those markets suddenly start to perk up, it’s almost impossible for the NASDAQ 100 to show any real strength. Ultimately, this is a market that is going to follow right along with interest rates, and a handful of stocks. Fading rallies until we break above the 200 Day EMA is probably the soundest of strategies that I know right now.

Nasdaq

Ethereum Forecast: Continues to Form an H Pattern

Ethereum Forecast: Continues to Form an H Pattern

Ethereum will continue to struggle on multiple fronts. 

Ethereum has fallen yet again during the trading session on Thursday as it looks like we are going to threaten the $1000 level. The pattern that we are carving out on the chart is an “H pattern”, which is typically very bearish. The $900 level recently offered significant support, and if we were to pierce that level, it’s very likely that Ethereum will go much lower. This is what I’m hoping for because I would love to be able to accumulate Ethereum at low levels again.

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Ethereum will continue to struggle on multiple fronts. The first problem of course is the fact that the Federal Reserve is tightening its monetary policy, so therefore risky assets such as cryptocurrency get decimated. In this scenario, Ethereum is no better than any other one, and it’s not until we see Bitcoin get a little bit of a boost that Ethereum can have a real shot. By extension, it needs to see the US dollar fall, because Bitcoin is getting killed by that very same greenback.

Furthermore, the Ethereum 2.0 rollout has been slow to say the least, and as long as that continues to drag on, there is a certain amount of ambivalence when it comes to this ecosystem. We have seen multiple lenders get crushed, and hacked on Layer-2 types of environments, which of course sit on top of Ethereum. At this point, crypto is entering a “crypto winter”, which is a time where people will accumulate crypto hoping for a major shot higher. I do think that there is some type of future for crypto, but I don’t think it’s going to be quite what most people anticipate. After all, we will have digital currencies coming out of central banks soon enough, and while the purest and libertarians argue about safety, Aunt Millie will be using those central bank assets.

If we were to turn around here, I think that the 50 Day EMA comes into the picture as major resistance, which sits just above the $1600 level. After that, you have a resistant barrier in the neighborhood of $1800 that could cause problems as well. Ultimately, I think this is a “fade the rallies” type of situation if you are planning on trading from both sides. Crypto is about as toxic as it gets right now, so that’s probably the prism you need to be looking at this market through.

ETHUSD

Bitcoin Forecast: Breaks Below $20,000 Level Again

Bitcoin Forecast: Breaks Below $20,000 Level Again

The Bitcoin market has fallen again during the trading session on Thursday to break back below the $20,000 level. At this point, it looks as if it is going to threaten the lows, closer to the $18,000 level. By all accounts, Bitcoin is nowhere near done selling off, and I do think that we have the ability to pick up Bitcoin at much lower levels. It is because of this that I have not been active in this market, nor do I think that it is one that you need to be worried about at the moment. The market will continue to see a lot of negative headwinds, especially as so much of the crypto world has imploded.

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Tightening financial conditions continue to be a major problem for cryptocurrency markets and the rest of the financial world, and that is not going to change anytime soon. It is because of this that I think you have plenty of time to get involved, as we are almost certainly going to enter a significant “crypto winter.” That being said, what you will more likely than not see is a level where people were willing to sit on the sidelines, and bigger traders start to accumulate.

The market has formed a massive “H pattern”, suggesting that it has further to go. Based on the measured move, you could see Bitcoin drop all the way down to the $10,000 region without much surprise. I anticipate somewhere between there and the $12,000 level, you will see more of a fight to stabilize. Once we start to see a lot of sideways action and seemingly nonchalant trading behavior, I will start accumulating. However, we are nowhere near that right now, and this is a market that still looks like sellers are out there waiting to get rid of it.

The US dollar strengthening has been like a wrecking ball for a lot of financial assets, and Bitcoin has proven itself to be no different than the others. For me, it has nothing to do with adoption, religion, or other such nonsense you hear around the Bitcoin world. For me, it’s about price. After all, Bitcoin is measured in US dollars, which probably tells you everything you need to know. Ultimately, it’s not until the US dollar loses strength that Bitcoin even has a chance.

Bitcoin