Investment Idea

OMXS30 – lower move ahead?!?

31/08/2017 | 1 min read
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Is OMXS30 about to move lower? The market is technically oversold, which has caused limited correction days. OMXS30 could move higher if it breaks resistance levels around 1560, 1584 and around 1600.

Nasdaq OMX continued to move with volatility last week. OMXS30 gained +0.6 percent, and closed the week at 1540.82. Since the beginning of the year, the index has gained +1.6 percent, +4.8 percent if adjusting for dividends.

Last week the market sentiment, was a bit on hold, as market participants focus were Jackson Hole conference at the end of the week, where the head of the U.S central bank Janet Yellen, and president of the ECB gave speech.

U.S Fed president Janet Yellen did not give any clear objectives ahead, when it comes to the monetary policy, which resulted in a relatively quiet market.

The president of the European central bank, Mario Draghi, highlighted the success of the QE program, as well as talk about the economic recovery. Ahead of the Draghi speech, German IFO-index showed an increased optimism around the state of the market. The Swedish crown, and the euro strengthened against the U.S dollar as a result.

A weaker U.S dollar is considered to be negative for the market state in general. The competitiveness of international companies, gives a negative effect as a result. EURUSD is showing signs of potential strength, and USDSEK is currently trading around significant technical support level around 7.9 – 8.0.

If the U.S dollar continues to weaken, long-term investors might be a bit more careful. Tightening of several central bank’s monetary policy, has been like a dark cloud over the stock market. This combined with a high value on the stock market, has showed signs of more passiveness among long-term investors.

The last few months, the volume has clearly been negative. During days when the market traded lower, where the volume is more significant compared to days when the market is moving higher. This is believed to be a potential warning sign, that underlying long-term buyers are more passive.

The long-term trend in OMXS30 is believed to show potential negativity. In our weekly chart below, the index broke a positive trendline, as well as important technical support levels around 1600, and around 1550. Especially when 1600 broke, the volume was relatively high. At this time, the weekly turnover in the market for OMXS30, were the highest since 2011.

Weekly chart of the OMXS30 between the 20th of March 2015 and the 25th of August 2017                         source: Aktiespararna

What might fuel the market with new momentum from buyers, could be if company profits start to increase more than previously expected. Upcoming earning season in October, will therefore be very interesting to follow. At the same time, the current weakening of the U.S dollar, could also be a negative effect on the profits.

Another potential reaction might be, if long-term investors fuel the market with capital, as several stocks would be more attractive. Technically we are in a situation where this is believed to be less probable.

Upcoming significant support levels for OMXS30, in the weekly chart, are located around 1500, and around 1390-1400.

OMXS30 is in the weekly chart currently heavily oversold, which might cause the index to bounce, but it is equally important to know that the index can continue to be oversold in a strong trend for a longer period of time. However, in a negative trend it is not uncommon, to experience several minor days when there is strength from buyers.

In our view, OMXS30 would have to do a reversal, or break significant resistance during a time when the volume is relatively high. One example would be, if the index starts finding ground above resistance around 1600, along with a market turnover of around 22-25 billion per day, during days when the market is moving higher. Otherwise the value of the signal would be considered less attractive, and unreliable.

In our daily chart below, OMXS30 has tried to break higher, at this technically oversold scenario. So far, it has been unsuccessful. Potential positivity could arise, if the index starts to find ground above 1560, and around 1583-1584. This could result in an attractive test of resistance level at around 1600.

Daily chart of the OMXS30 between the 16th of January 2017 and the 25th of August 2017                              source: Aktiespararna

So far, OMXS30 has yet to show any significant higher move. It is not uncommon that the index trades around the 200-day moving average, which is currently trading at around 1570.

This might be a confirmation, that the underlying strength is relatively weak. Lower highs, lower lows further add to the fuel of potential weakness.

Potential continued weakness could arise, if the index starts trading below 1519. Sooner or later, important technical support levels to be tested, around 1499-1500, could be expected.

Potential short-term strength came to the surface, in our hourly chart below. The index broke resistance around 1532, 1535, 1538 and around 1546. The index moved higher, during a time of low volume. At the end of the week, the index broke support at 1546, which adds potential further weakness.

Hourly chart of the OMXS30 between the 08th of August 2017 and the 25th of August 2017                             source: Aktiespararna

Technical key support levels in our hourly chart, is located around 1538, 1536, 1532 and around 1519. Technical resistance is also awaiting around 1552, 1560 and around 1583.

Long-term investors might be a bit on hold, due to negative volume pattern, as well as since the index recently broke significant technical support levels.

Weekly chart of the OMXS30 between the 17th of August 2012 and the 25th of August 2017                             source: Aktiespararna



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