Dollar Index: On January 12, 2022 the Dollar Index generated short and intermediate term sell signals.
As I pointed out in my research notes of early September and mid November 2021, the Dollar Index remains in a long term bear market. Despite a substantial rally, which carried DXY to the highest level since July 2020 and a current one year return of 5.65%, it remains down 2.28% (2.22 points) from its level of two years ago and lower by 5.60% (5.64 points) at this time five years ago. Although the shorter term weekly moving averages have improved with the rally, the longer term weekly simple moving averages remain in a strong bearish set-up: 50 week 92.43, 100 week 94.04, 150 week 95.18.
The latest Commitment Of Traders Report (January 11) reveal that “Leverage Funds” hold 14,533 contracts long and 9,981 short and the elevated long position should add to downside momentum if prices continue lower.
In my research note published on November 21, 2021, I said that December CME Bitcoin futures had generated a short term sell signal on November 17 and that it would generate an intermediate term sell signal if fell below $52,392. On Friday January 14, 2022, the January contract closed at $43,120 and February, 43,245. Both contracts made new lows for the move on January 10 ($39,470 and $39,625 respectively). On the continuation chart, the January 10 low was only fractionally above the August 6, 2021 print of $39,910.
In the November 21, 2021 note I said: “The decline should be contained at the 48,170 level, but a move below this would be very negative.” Since then Bitcoin futures continue to trade in a weak fashion and the daily moving averages are moving into increasingly negative territory. As of the January 14 close on Friday, the daily simple moving average set-up is as follows: 10 day 43,526, 20 day 45,837, 50 day 52,339, 100 day 52,326. This week or next, the 50 day moving average will cross below the 100 day. While this is negative, it does not tell us anything about the longer term trend. However, for Bitcoin to regain its upwards momentum the daily moving averages just cited must reverse their current bearish configuration into a bullish one. This takes time.
Of greater concern are the two tops made in CME futures approximately seven months apart on the continuation chart of 65,520 on April 14, 2021 and 69,335 made on November 10, 2021. In my view, the $65,000 area is likely to be formidable resistance in the future. As we have seen in the gold market, an all-time high can last longer than anticipated. I thought that gold would would have taken out its August 2020 high by now. However, it has been range bound and at this juncture is unable to mount a sustained move higher. Bitcoin may follow this pattern.
The latest Commitment Of Traders Report for CME futures ( January 11) reveal that “Leverage Funds” hold 1,464 contracts long and 7,159 short. Therefore, if a rally ensues there is fuel for a move higher if shorts capitulate. What might signal a reversal in trend? The 20 day SMA has contained all rallies since I announced Bitcoin’s sell signal on November 17, 2021. This is the average to watch.
If the nearby CME Bitcoin contract is able to make at least one daily low above its 20 day SMA, a continued move higher is more than likely. As of January 14, the 20 day moving average stands at $45,837. According to my calculations for the nearby CME futures contract to breakout above the 20 day SMA using January 14 data, I project a price high on that day of approximately $48,541. If the 20 day SMA declines further from here without futures making a low above it, the target high would be lower as well, perhaps substantially. If the nearby CME contract is unable to make a low above the 20 day SMA, Bitcoin will continue to drift lower. I will update this projection in the future
To read about my analytical process for stocks, visit online booksellers, Amazon or Barnes & Noble and enter the title “How I Trade Stocks” by Garry Stern.