OMXS30 has fallen to important technical support

OMXS30 has fallen to important technical support

6. helmikuuta 2018 Autor Tradingportalen

The OMXS30 continued to slide last week. Apart from various earnings disappointments, players are also concerned about the outlook for interest rates and equity markets in the US. The OMXS30 is currently poised above an important technical support area around 1573-1584. A breach of this area, coupled with sustained price action below it, could have negative connotations. But since the index is technically oversold, a break above the resistance areas around 1592 and 1602 would improve the short-term outlook. Sustained price action above the 1648 resistance area will be required in order for the longer-term technical outlook to improve.

 

The Stockholm market slid on relatively high turnover last week. The large cap index OMXS30 fell -1.7%, closing the week at 1584.79. Thus, the year-to-date gain was pared to +0.5%.

The week was characterised by a slew of earnings releases that sent share prices in opposite directions. Winners among the OMXS30 constituent stocks were: Alfa Laval, AstraZeneca, Autoliv, Electrolux, SEB and Volvo. Losers included: Ericsson, Getinge, H&M, SCA, Securitas, Skanska, SKF and Tele2.

The most dramatic price moves were posted by Ericsson, whose disappointing earnings sent its share price tumbling -9.2%, and H&M whose shares fell -10.6%, adding to its recent woes.

Additional drama unfolded in the wake of Friday’s US employment stats, which showed a gain in the number jobs and an unexpectedly strong salary increase. This resulted in rising US interest rates and the 10-year bond posting the highest rate in over three years. Nervousness was magnified by uncertainty over the Fed’s future course given the transition of power when Fed Chair Janet Yellen hands over to Jerome H. Powell. Will the new leadership usher in a more aggressive tightening?

To make matters worse, President Trump ordered the declassification and release on Friday of a politically charged memo. This move threw political uncertainty into the mix and added market uneasiness going into the weekend.

The technically overbought US markets experienced sizeable retracements as a result. The S&P 500 Index fell -2,12% on high turnover. This was the largest drop in almost two years, exceeded only by the Brexit selloff in June 2016, potentially indicating that the long-lived rally is losing steam.

If this turns out to be the case, although it is too early to tell, the Swedish market would lose an important buttress. Peripheral markets are generally buoyed by strength in the US indexes. Setbacks in Sweden tend to be short-lived when the S&P 500 powers ahead; such support would be neutralised if the US markets lose momentum.

Retail investors’ combined Bitcoin-losses could potentially affect the short-term market outlook. Turnover has been substantial; 7% of all commission revenue at leading Swedish broker Avanza was attributable to Bitcoin in Q4. The Bitcoin tracker “BITCOIN XBT” has come off -59% from its December highs. A lot of trading capital may have been lost.

The longer-term trend on the OMXS30 weekly chart remains up. The rising trend line that connects four historical lows has held [at the time of going to print]. The index still presents a pattern of higher lows and higher highs.

Weekly chart of the OMXS30                                                source: Infront

But the OMXS30 is now trading below its 40-week moving average, which has levelled off and even acquired a slight downward slant. So signs of deteriorating momentum are gradually emerging.

Another longer-term cautionary sign is that volume behaviour has been negative since the summer. Turnover was far greater during 4 of the weeks when the index fell compared to every individual advancing week. This indicates that long-term investors were not significant net buyers, which is a prerequisite for further long-term gains.

The OMXS30 is currently at the highly significant technical support area around 1573-1584 [at the time of going to print]. A period of stability is likely to ensue if the index holds above this area, and any subsequent advances on strong volume could be bullish. Strong price action off the support area could lead to a test of the resistance areas around 1683 and 1720 later in the spring.

If the support area does not hold, however, especially if a breach occurs on brisk turnover, the longer-term technical outlook would become more bearish. The next area of support, around 1500-1518, could potentially stem downside moves.

The daily chart shows that the OMXS30 has broken through a number of short-term technical support levels. Losses may extend further if the support levels around 1573, 1560 and 1518 are taken out. The index is trading below its 200-day moving average, which is still sloping up with a current value at 1611.

Daily chart of the OMXS30                              source: Infront

The daily Stochastic indicator is in technically “oversold” territory. The low reading should be taken with a large pinch of salt, however, as “oversold” conditions can persist for long periods of time in conjunction a strong downtrend. Sharp upward corrections against the prevailing selloff may occur and bullish reversal behaviour would probably pique the interest of technicians who note the low Stochastic.

From a technical standpoint, the OMXS30 needs to establish itself above resistance around 1648 in order make longer-term gains.

The short-term outlook would swiftly improve if the index manages to get through the resistance areas around 1592 and 1602, visible in the hourly chart below. The technical outlook would deteriorate if support at 1581 and 1573 fails to hold.

Hourly chart of the OMXS30                              source: Infront

Short-term traders will probably focus on breaches of the resistance level around 1592 and 1602 and/or failure of the technical support around 1582 and 1573.

The OMXS30 will need to get above resistance around 1592 and 1602 in order to mount a meaningful rally. The oversold Stochastic value could fuel volatile price action. A likely near-term objective would be 1610-1613. If momentum carries through this area, the next resistance areas are located around 1620-1623, 1635 and 1648.

Although the OMXS30’s longer-term outlook is beginning to look questionable, the trend is still technically intact and bullish price action around the key support levels may attract buying from longer-term investors. Positive sentiment would be severely tested if the index trades below 1573-1584, in which case caution would be advisable.

 

Important legal information

 

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

 

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

17.10.2019 2:20:11

 

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