OMXS30 shows signs of weakness
OMXS30 showed signs of weakness last week as the index continued its journey north breaking through support at 1600. The long-term trend is still intact, and the NASDAQ OMX is currently, technically oversold
The NASDAQ OMX declined last week with a moderate increase in volume activity. The large cap index OMXS30 finished the week on 1592,20, a decrease of 1,4%. The gains for the year now total 4,9%. An increase of 8,7% including dividends.
The index ended the week on a bad note when news arose that Michael Flynn, the former national securities advisor said he was willing to testify against president Donald Trump, claiming the president instructed him to contact a Russian connection.
The unexpected news hit the markets and some feared this might jeopardize the republicans vote to pass tax reform in the senate.
Financial markets have already priced the stimulus eventual tax cuts may provide, and are very sensitive to this not becoming a reality. Stock prices therefore fell sharply on Friday afternoon in Sweden. The price dropped below the 200-day moving average, and surpassed the psychologically important 1600 level.
Time will tell if the OMXS30 will hold under the 1600 level. This would be a sign of weakness. This could also be temporary detour. Despite the news about Michael Flynn, the republicans passed their tax reform after the market closed. This might be a step towards a more positive market climate.
During the week there was continued pressure weighing down bank stocks. It seems as foreign investors are selling the Swedish financial sector. This was not the only sector that took a hit; the industrials and mining also got its fair share.
H&M saw its share price stabilize due to an interview with CEO Stefan Persson commenting on his strong belief in the company and said that the company was riding the wave of digitalization better than people actually think. Time will tell if his comments holds true. H&M have been down for the count before but have always come back with pace.
The Swedish housing market continues to shake, and is exacerbated by the government implementing stricter rules on amortization. This might cause the Swedish economy to cool, when many who were eligible for credit are now left on the sidelines.
People who have bought new property but not yet sold their old one, runs the risk of have to accept a substantially lower price on their old property which could influence the minimum cash requirement for the new one. A factor here is also that the banks promise for a loan runs out after 6 months, when time runs out the applicants have to apply for a new mortgage which could mean that they have to settle for worse terms and conditions than previously intended.
All this could spill over to the stock market since some people might have to sell stocks they had not intended in order to afford the mortgage on their new home.
The OMXS30 shows signs of weakness on a weekly timeframe. The index has closed below support level 1600, and below its 40 day moving average. The volume on the downturn has been somewhat stronger, which gives more validity to the move. Also note that the stochastic indicator shows a technically overbought market, and is turning south.
Weekly chart of the OMXS30 source: Infront
If the OMXS30 turns north once again, above 1600 and with moderate volume, this signal of weakness would be declined. But if the market establishes itself below 1600, a more serious note has to be considered. The next support level on this long timeframe can be fond around 1500-1518.
The long-term trend has started to shake, but as long as the support at 1500 holds, the trend is intact. Note that the 40-day moving average still points to the upside.
The daily chart below also shows signs of weakness. Support at 1600 is breached and price now rests below the 200-day moving average.
Daily chart of the OMXS30 source: Infront
It remains to be seen if the OMXS30 can establish itself beneath theses psychologically important levels. Even numbers and moving averages are something that many market participants pay close attention to.
Also interesting in this chart is that the stochastic indicator is technically oversold.
In order for the daily chart to give a signal of strength, it has to establish itself above the levels 1640 and 1682. This should occur on high volume in order for it to be given a higher form of merit.
The hourly chart below also shows signs of weakness.
Hourly chart of the OMXS30 source: Infront
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