Global markets and cryptocurrencies have been experiencing deep declines for months. Bitcoin price’s strong correlation with traditional stock markets further exacerbates this trend. Dominating all of this is the US Dollar Index’s parabolic rise, which is only accelerating.
For now, however, global markets and their major indices have reached long-term support levels that could mark the point for a recovery. Furthermore, the DXY is slowly approaching its own macro resistance, which could halt the US Dollar’s exponential rise.
In today’s analysis, BeInCrypto looks at the SPX and NASDAQ price action in correlation to the BTC and altcoins charts. Then we look at the DXY chart and its rapid dominance against other global currencies. It all culminates in a harmonic analysis that suggests an impending upleg.
Global markets in downtrend
The S&P 500 (SPX) chart has been in a bearish trend since hitting the all-time high (ATH) of $4,818 on January 4, 2022. Shortly thereafter, the ongoing decline began, and the index hit a nearly 2-year low (665 days) yesterday. The SPX retreated to the $3,624 level, losing almost 25% against the ATH.
If the SPX initiates a jump at this point, a double bottom pattern could be present. In June, the index fell to the $3,636 level, only to fall back into the $4,325 area which previously served as support (red rectangle). This resistance sits in the area of the 0.618 Fib retracement measured for the entire down move.
The NASDAQ chart looks similar to the SPX, but the pullback from the ATH was stronger and the bounce off the bottom was weaker. The index hit an all-time high of $16,770 on November 22, 2021. This came less than two weeks after Bitcoin’s ATH of $69,000 on November 10th.
So far, the decline has led to the $11,035 level reached on June 16, which is 34% below the ATH. The short term bounce that took place this summer hit a resistance/support area at $13,727 just below the 0.5 Fib retracement for the entire down move.
A double bottom pattern is also possible on this chart, however the NASDAQ should start a strong recovery. The last time we saw prices this low in the index of technology companies was in November 2020, 693 days ago.
Shorting macro support? Not the best idea
Analyst for traditional markets and cryptocurrencies @TrendRidersTR tweeted 4 charts: SPX, NASDAQ, Bitcoin and Altcoins. According to him, it is currently possible to mark areas of macro support on each of them that can help halt long-term declines.
He goes on to say that “markets have entered a large risk-reward zone with clear invalidity levels.” Only if the levels marked below are lost will global markets remain bearish in the long term.
The above argument is supported by a tweet from another analyst @IncomeSharks, which puts retail investor behavior in the context of S&P 500 price. He claims that there is currently a “record number of retail short sales and buy puts. Right off the $SPX major horizontal support.” The analyst expects a short squeeze and a bounce to the $4,040-$4,080 range.
All eyes on the DXY
The main determinant of the ongoing price action of the global markets and cryptocurrencies is the US Dollar Index (DXY). Its value affects not only the stock and digital asset markets, but also the world’s major currencies.
An annual chart of the USD against several major currencies has been released on the Official @TradeView Twitter account. It shows not only the dollar’s rising parabola, but also its negative correlation with all other currencies.
For example, the euro lost 18.13% year-on-year and the Japanese yen even lost 23.24%. The US dollar, meanwhile, gained 22.42%. The divergence already seems so large, and the recent declines so severe, that a trend reversal is becoming increasingly likely.
In a previous analysis, BeInCrypto indicated that the DXY parabolic rise may not end before historical resistance in the 119-120 range. However, this would still represent an increase of around 6% from current valuation, which would certainly continue to negatively impact markets and currencies.
At the moment, the DXY is trying to close a monthly candle above the resistance at 113 (red rectangle). If this succeeds, reaching the 120 mark in a further step would be very likely.
Harmonic patterns to the rescue
An interesting harmonic analysis of the SPX and DXY was posted on Twitter by an analyst and trader @MagicInternetM1. Harmonic patterns use geometry and Fibonacci numbers to determine precise turning points. Based on this, they try to predict future price movements of assets. Gartley, Bat and Crab are among the most popular formations in harmonic analysis.
In the published analysis, we see a bearish bat formation on the 3-month DXY chart. Its Apex D is in the 119-120 resistance zone mentioned above. Additional confluence here is provided by the long-term 0.618 Fib retracement level.
On the other hand, there is a bullish deep crab formation emerging on the weekly chart of the SPX. Here the final D peak may already have been reached. A potential bounce could lead into the $4,050-4,100 range at the 0.382 Fib retracement level, which is also the low of Q1 2022. This area remains in confluence with the bullish target found in the second section above.
In summary, the above analysis suggests that there are increasing signals that the cycle of falling asset prices and the strengthening US dollar is nearing an end. Although no one knows where and when the current bear market will end, the likelihood of at least a medium-term recovery is increasing.
To be[In]Crypto’s Latest Bitcoin (BTC) Analysis, click here.
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