OMXS30 marks time pending positive earnings season to enable new advances

OMXS30 marks time pending positive earnings season to enable new advances

23. tammikuuta 2018 Autor Tradingportalen

The OMXS30 is in a short-term range, potentially gathering strength for an impulse move on the back of a positive earnings season. The index exhibits technically positive traits, is in a long-term uptrend and has entered a historically positive time of year for Swedish equities. Provided that the burgeoning earnings season corroborates the impression of a healthy economy, the stage may be set for a buoyant market in the spring. From a technical standpoint the OMXS30 will need to clear key resistance levels at approximately 1635, 1640 and 1682 to make new advances to the upside. A break below the key support level around 1560-1573 would indicate weakness.

 

The Stockholm market exhibited lacklustre trading activity last week. The OMXS30 rose by a modest 0.1%, closing the week at 1630.62. The index has advanced 3.4% year-to-date.

Last week’s trading activity was tentative in anticipation of the Swedish earnings season, which begins in earnest towards the end of this week.

Yet market players appear relatively confident ahead of the pending earnings releases. Equities have begun the year on a positive note, the Swedish economy appears healthy and corporate profits are expected to rise. Additionally, the US markets have continued to rally in the face of political turbulence, and interest rates are at historically low levels – albeit off their absolute lows.

The sharp rally in the Swedish Krona (SEK), especially versus the US Dollar, has weighed on Swedish market sentiment in recent months. Concerns regarding the domestic property market, enactment of the EU’s MiFID II legislation and Bitcoin hysteria at the end of last year also hampered Swedish equities. But the negative impact of these factors appears to be waning.

Ericsson B, Sandvik and SKF B were the strongest performers among the OMXS30 Index constituent stocks last week. At the other end of the spectrum was construction group Skanska, whose B-shares contributed negatively to the index when they declined -7,7% on heavy turnover in response to a profit warning.

From a technical standpoint the long-term trend of the OMXS30 remains up. The index is trading above its upward-sloping 40-week moving average and the pattern of successively higher highs and higher lows is intact on the weekly chart.

Weekly chart of the OMXS30                                                source: Infront

The OMXS30 exhibited technical strength when it broke above a declining resistance line on the weekly chart at the beginning of January. The likelihood of further upside momentum would increase if the index breaks above the resistance levels around 1682 and 1720, especially if underpinned by large trading volume.

A more bearish scenario would emerge if the OMXS30 instead breaks below weekly support levels around 1573 and 1518.

The weekly Stochastic indicator has turned up from low values giving plenty of room for the OMXS30 to advance before Stochastic-readings reach “technically overbought” readings.

The daily chart shows the index breaking above a downward rectangle formation around 1613 two weeks ago. Price action since then has been range bound, seemingly building pressure for a breakout. Renewed strength appears logical given the underlying trend.

Daily chart of the OMXS30                              source: Infront

A break above the resistance level at approximately 1640 on the daily chart would be technically significant, especially if accompanied by brisk volume. The next level of resistance on the daily chart is at approximately 1682.

The OMXS30’s recent price consolidation can be viewed as a pennant formation within the context of a larger move. Technical analysis generally infers a relationship between the height of a pennant formation and the size of subsequent breakouts to the upside or downside. By this measure, a move up from the pennant could reach just below the next resistance level on the daily chart.

The value of the Stochastic indicator is currently high on the OMXS30 daily chart, considered “technically overbought” by some. However, such values can persist over extended periods of time when there is a strong trend.

Corrections against the prevailing trend are likely to find support around the 200-day moving average around 1612 and the downward sloping trend line on the daily chart around 1607 [at the time of writing]. Breaks below these levels could indicate short-term weakness. Significant support also appears around the December low at 1573 and area around 1560.

Recent consolidation is even clearer on the hourly chart. The OMXS30 needs to break and stay above the resistance level at 1635 to indicate short-term strength. Breaks below support around 1621 and 1614, could indicate short-term weakness.

Hourly chart of the OMXS30                              source: Infront

Experienced day traders may choose to focus on price action in the range between support at 1621 and resistance at 1635 using strict risk management. Follow-on momentum may ensue if the price action lodges above resistance at 1635. The next areas of resistance would be 1640 and 1680 respectively.

The longer-term outlook for the OMXS30 appears relatively positive. The trend is up and Swedish equities have historically exhibited a seasonal bullish tendency in the spring. Attempts to take out the previous highs seem likely.

However, the positive scenario would be cast into doubt and extra caution would be advisable if the OMXS30 breaches technically significant support around 1560-1573.

 

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.

11.11.2019 20:42:02

 

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