Rally approaches technical resistance level

Rally approaches technical resistance level

den 20 februari 2018 författare Tradingportalen

The OMXS30 rebounded from a technically oversold condition last week, breaking a number of short-term resistance levels. A subsequent break of the resistance around 1557 would be technically bullish. But since the volume in this rally has been relatively meagre, and the longer-term trend is turning down, there is a risk that this is only a fleeting correction that doesn’t have the necessary buying pressure behind it to breach key resistance around 1580-1600. The support area around 1547-1532 needs to hold in order for the index to mount further advances. A break of the longer-term support around 1488 would be bearish from a technical standpoint.

 

The Stockholm market staged a strong rally last week on relatively low volume. The large cap OMXS30 Index advanced +3.8%, ending the week at 1556.93. Thus the index is down -1.3% year-to-date.

Swedish equities recovered from a technically oversold condition last week, in line with most other international bourses. Relative calm in the fixed income markets helped.

It’s too early to tell whether that last week’s rally marks the end of recent stock market turbulence and a resumption of advancing prices. The prospect of higher US treasury yields casts a large and ominous shadow over the international stock market recovery.

While the OMXS30 appears to have entered into a long-term downtrend, Swedish equities remain indirectly supported by the American stock market, whose long-term trend is still intact. A downturn in the US would have negative repercussions.

The long-term trend in the US could be compromised if the S&P 500 breaks below its year-low around 2532.

The Swedish earnings season is winding down. Last among the OMXS30 component stocks to report were Boliden and Swedish Match, both receiving positive reactions from the market.

Another notable event last week was H&M’s long awaited “Capital Markets Day 2018”. Would this exercise in openness instil confidence in the company’s e-commerce strategy and future prospects?

Despite a well-choreographed event and unprecedented transparency, H&M’s stock reacted poorly. Investors’ concerns were not allayed by management’s promises of a bright future.

The weekly chart below shows the OMXS30 long-term trend has begun to turn down. The index is trading well below its 40-week moving average, which has topped out and assumed a downward slant. The pattern of higher highs / higher lows is also broken.

Weekly chart of the OMXS30                                                source: Infront

The OMXS30’s breach of support around 1573-1584 on substantial volume was bearish. Last week’s corrective rally unfortunately occurred on relatively low turnover. This volume pattern is negative from a technical standpoint and corroborates the ebbing buying pressure that began last summer.

The shorter-term outlook on the weekly chart is buoyed by a low, technically oversold reading on the Stochastic indicator. Counter-trend corrections oftentimes emerge from this type of situation, as witnessed last week.

But rallies on low volume below the 40-week moving average hardly constitute the beginning of a turnaround. Some investors will try to capitalise on advances below the 1580-1600 resistance area to reduce their equity exposure.

From a technical standpoint, the OMXS30 will need to post a clear reversal on the weekly chart and/or establish price action above the 1580-1600 resistance area to make further gains.

The more detailed daily chart below shows the [daily] Stochastic indicator turning up from an oversold level. Price action needs to occur above the nearby 1555 resistance area to verify that the OMXS30 is building real strength.

Daily chart of the OMXS30                              source: Infront

The OMXS30 did in fact close the week at 1556.93 but it’s too close to call, especially given the close proximity of resistance around 1557 visible on the hourly chart below.

The daily chart also shows a resistance area around 1573, followed by resistance at 1595-1600 and the 200-day moving average located around 1609 [at time of going to print].

There is a risk that last week’s rally merely represents part of a brief counter-trend correction that could run out of steam at any of the resistance levels mentioned. The major Fibonacci levels – based on retracements of 50%, 61.8%, and 76.4% – are located at approx. 1547, 1532, 1499 and 1488.

Hourly chart of the OMXS30                              source: Infront

Short-term bulls will be watching price action around the 1557 resistance. Short-term bears will be focusing on price action around the 1547 support area.

Long-term investors should be cautious given the OMXS30’s deteriorating trend characteristics and negative volume pattern.

Capital preservation is important, especially in volatile conditions.

 

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.

2019-09-19 16:52:44

 

Lämna en kommentar

 

  

 

  

 

* Obligatoriska fält måste fyllas