OMXS30 threatens positive trend
Last week sellers started showing strength, which caused OMXS30 to start trading below support levels at around 1645 and 1638. The long-term view is still showing strength however, but when the market started trading lower, the volume increased significantly enough to threaten the positive trend.
Last week Nasdaq OMX started trading lower, during increased volume and volatility. OMXS30 fell -1.1 percent, and closed the week at 1629.21. Since the beginning of the year the index has gained +7.4 percent, +10.7 percent if considering dividends.
U.S president Donald Trump caused the financial markets some headaches, when reportedly tried to get the fired FBI director James Comey to close the investigation regarding the last security advisor Michael Flynn. According to news, Flynn reportedly leaked top secret information to the Russian foreign ministry. Investigation regarding ties to Russia along the presidential campaign will continue.
This could be causing some concerns, where market participants are questioning, if programs like tax reduction, infrastructure and others will be able to pass. This could be negative for the market. Part of the market gain since November, is due to hope of future tax reduction and infrastructure programs. This could even potentially mean he would have to, at some point leave his position, which currently seems very remote. But it could remind us a little of the Watergate crisis during the 70s. Have Donald Trump recorded his conversations with James Comey? Will he be forced to present these?
Trump is however a master of the media. It would not be surprised if he sooner rather than later tries new outbursts, causing these scandals to fade away and be forgotten. To be continued…
Anyhow, OMXS30 broke several support levels last week, causing potential lower moves up ahead. Support levels of 1645, 1638 and 1622 were broken, and the index even tested next support at 1603-1604, but did not break.
Even the Stochastic-indicator triggered a negative indication, when significantly diverging from overbought.
For the short-term trader these signals could be important, but the long-term view still seems to be intact. OMXS30 is still trading well above its 200-day moving average, which is still showing strength. Even the short-term 20-day moving average could be showing positive signs.
OMXS30 is however now trading below the 20-day moving average, which could be causing some concerns of potential further negativity.
Another potential negative factor was presented when OMXS30 tested support levels at 1603-1604 during high volume. This could potentially mean we are about to get a more upper hand from sellers in the near future, unless buyers would be starting to take over again.
Daily chart of the OMXS30 between the 17th of January 2017 and the 19th of May 2017 source: Aktiespararna
For the trader trying to interpret everything in a more positive way, one could argue that last week a wash-out sale was experienced. In this context, it would mean that sellers sold off what could be sold from a short-term view. This is not uncommon at the end of a lower move, where buyers are later on taking over and causing the market to move higher.
Right or wrong, the current situation could have at least become much more complicated than before, and the risk level could have potentially increased.
Maybe when the market moved lower during last week, during high trading activity could potentially be considered as “Once Is Chance, Twice is Coincidence, Third Time Is A Pattern”.
Technically we do not want to see the market start trading lower with a round turn of above 20 billion per day, or that OMXS30 could start finding ground below support of around 1603-1604, as this could potentially increase negativity.
Surely 1600 could be a psychologically important price level, which means that it could be considered as a support level all together within 1600-1604.
What we would like to see to increase positivity, is for the market to trade higher with the same kind of momentum, preferably above 20 billion round turn per day, or if we are seeing significant strength from buyers if starting to trade above resistance level at around 1657.
Further strength and positivity could potentially arise if OMXS30 starts trading above resistance level at 1657, during high trading activity.
Should OMXS30 find ground below support levels at around 1600-1604 during high trading activity, this could potentially signal an even lower move. If this would happen, support levels could be located at 1585, as well as 1544.
It is not uncommon to hear the phrase “Sell in May and stay away”, and according to several studies the average yield is very low. Between November and April, could be considered to be more attractive. This is however just an average, specific years during May and October have shown to be very profitable.
Hourly chart of the OMXS 30 between the 24th of April 2017 and the 19th of May 2017 source: Aktiespararna
Should OMXS30 from a short-term view find ground above resistance levels 1622 and 1629, next resistance levels at around 1639-1640 could be in the ballpark, and even potentially later on 1655-1657.
There could be a slightly higher risk, since we experienced significant negative volume pattern during last week, when the market closed considerably lower.
This means that if OMXS30 instead would find ground below 1622, it could potentially indicate that we could see a lower move towards 1600-1604. This scenario could also apply from a more long-term view, as this could potentially then mean an even lower move.
As the long-term view seems still to be indicating strength, we are looking for further positive signs, such as when the market would start trading higher during significantly high volume, which would take us back to a positive volume pattern. Should OMXS30 find ground above 1657 during increased trading activity, this could even potentially mean we could experience previous all-time high around 1720 again.
Weekly chart of the OMXS 30 between the 18th of May 2012 and the 19th of May 2017 source: Aktiespararna
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