Technical Indicators Pointing to a Shift in Market Momentum

Justin Freeman

Shift in market momentum

Mixed messages from technical indicators point to a potential change in market direction. The hourly and daily indicators in equities remain positive for now, but forex and commodity signals have shifted to ‘neutral’ and ‘sell’. With major equity indices posting all-time-highs last week, there is an argument that there is little resistance to further upward movement for that asset class. However, the disconnect with other asset groups is something to monitor.

Technical Indicators – What a Difference a Week Makes

The week starting the 25th of October was marked by hourly and daily technical indicators offering an almost clean sweep of ‘Strong Buy’ signals.

Technical Indicators – 25th October

Instrument

Hourly

Daily

GBP/USD

1.3785

Strong Buy

Strong Buy

EUR/USD

1.1661

Strong Buy

Neutral

FTSE 100

7,228

Strong Buy

Strong Buy

S&P 500

4,548

Strong Buy

Strong Buy

Gold

1,798

Strong Buy

Strong Buy

Silver

2,442

Strong Buy

Strong Buy

Crude Oil WTI

84.07

Strong Buy

Strong Buy

Bitcoin

62,622

Strong Buy

Strong Buy

Source: Forex Traders – Technical Analysis

Positive momentum in the prior week had resulted in all the asset groups in the above table posting up weeks between the 18th and the 25th of October.

As it turned out, the ‘Strong Buy’ signal only came good in the equity markets. By the 1st of November, the S&P 500 was up 1.43%, and the FTSE 100 posted a positive return of 0.46%. All the other asset classes posted negative returns, with silver and oil down approximately 2% on the week. The euro and sterling both lost ground to the dollar.

Technical Indicators – 1st November

Instrument

Hourly

Daily

GBP/USD

1.3685

Sell

Strong Sell

EUR/USD

1.1558

Sell

Strong Sell

FTSE 100

7,261

Strong Buy

Strong Buy

S&P 500

4,613

Strong Buy

Strong Buy

Gold

1,784

Neutral

Sell

Silver

2,384

Sell

Strong Sell

Crude Oil WTI

82.52

Buy

Strong Buy

Bitcoin

60,589

Strong Buy

Neutral

Source: Forex Traders – Technical Analysis

The nature of technical indicators and their reliance on past price data to predict future events can limit their effectiveness. The events of last week demonstrate how looking in the rear-view mirror doesn’t always help drivers wanting to know the direction to take in terms of going forwards.

A split across asset groups can, however, offer interesting insights into the markets’ mood. The dollar’s strength represented by the price fall in EURUSD and GBPUSD suggests a move towards the security of the greenback. The rally in share prices points in the other direction, towards increased appetite for risk-on equities.

Final Thoughts

A continued slow and steady climb in equity prices can’t be discounted. That has, after all, been the natural way of things in that market for many years. Corrections in price are infrequent, dramatic, and short-sell trade entry points are hard to pinpoint in advance. It could be a good time for equity traders to sit on their hands, with many deciding that it’s too late to buy but too early to sell.

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Justin Freeman
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