OMXS30 Analysis v.18 ”Strong buy signals triggered”

Last week Nasdaq OMX moved to a new year high. Our Swedish stock index OMXS30 gained +3.4 percent, and closed the week at 1626.99. The index has gained +7.2 percent so far since the beginning of the year. Adjusting for dividends, last week gain were +3.8 percent, and since the beginning of the year +10.1 percent.

It was a relief when the French president election does not seem to be handed over to the EU-reluctant Le Pen, but to the liberal and pro-EU Macron which triggered investors to start buying.

When several earnings reports continued to surprise on the up side, the market continued to move higher. Among the OMXS30 companies, Atlas Copco, Electrolux, Getinge, Investor, Nokia, Sandvik, SKF, Telia, Tele2 and Volvo all surprised on the upside. However, Boliden and Ericsson lost ground after their reports.

Previously in our weekly OMXS30 analysis, we have highlighted that there is a large latent need for buying stocks among institutional investors around the globe. The last few years they have had an overexposure in bonds, which has been beneficial. The rates have gone down, and risks has been lower with bonds than with stocks.

With increased optimism of growth, and increasingly concerns around inflation, we are starting to see a change. The risk for the rates to increase causes bonds to be a less of an attractive deal, and the possibility of a better state of the market is causing stocks to be a winner. When other market participants quickly change their positions, institutional investors are like “supertankers”. It takes time to make a change, and when they do it takes time to change.

They are obviously trying to hide this as much as possible. But when they are starting to buy stocks heavily, clear signs are left in the chart. This is now confirmed when the trading volume is increasing when the market moves higher, compared to the days when the market is trading lower. Days when the market is moving lower, is also short time wise, and not particularly large.

This ends up having a pattern in which the one we have experience in OMXS30 the last few months. The trend is showing increasing strength, with higher highs and lowers as well as positive volume patterns. Negative news is also not causing any consistent affect. The market might move slightly lower followed by consolidation. But when the dust has settled, the fight continues for stocks among market participants.

If this continues to gain ground, the market can move very high. Higher than previously anticipated. Some seem to feel that stocks are overvalued. But once analysts have adjusted their Excel spreadsheets, stocks may no longer be considered overvalued. The market has also historically been periodically overvalued and continued to move higher.

However, to be able to be on the early train, investors need to identify when the trend is slowing down or broken, so positions can be closed. That is why we are carefully following the strength and angle of the 200 day and 20 day moving average in OMXS30. We are also carefully watching support levels, and how the trading activity is when the market is moving higher, and lower.

Currently it is looking bright for OMXS30. The long-term and short-term trends are positive. Last week strong buy signals were triggered for the index when it moved above resistance levels of around 1585, 1591 and around 1603 during increasing trading volume.

Stochastic is still at high and overbought levels. Short-term this increases the risk for profit taking. This in itself is not a sell signal, because OMXS30 can continue to be overbought for a longer period of time, when it has entered a strong trend.

If OMXS30 would again start to trade below support levels of around 1603, 1591 and around 1585, sell signals would be triggered. If the market would start moving lower on low trading volume, at around 20 billion per day, we still see these days as potential buys for the long-term investor.

More significant support levels would be around 1540, 1526 and around 1499, especially during increasing activity.

Currently we are more likely to see the market to move higher. Looking at the weekly chart, resistance levels are around 1640-1670. But since we are currently experiencing very high trading volume, when last resistance was passed, OMXS30 has the potential to with time break resistance and all-time-high of 1720.

Weekly chart of the OMXS 30 between the 12th of December 2014 and the 28th of April 2017                               source: Aktiespararna

For the short-term investor, we now have a number of buy-signals, and strong trend to act upon. First and foremost, look for the market to move towards the interval of around 1638-1669. Secondly there is an upcoming test of around 1720. Consider using a stop loss just below support of around 1620. See hourly chart below.

 

 
Hourly chart of the OMXS 30 between the 31st of March 2017 and the 28th of April 2017                  source: Aktiespararna

Consider moving the stop loss higher, along when the position is showing greater profit. For example, place it just below the previous day low.

For the long-term investor, we are continuing to recommend to be positioned for the market to move higher in OMXS30. If there is still room for increasing the position, consider increasing the position during days, when the market moves lower during low trading volume.

This applies as long as the volume patterns and long-term trends are strong and positive. Should these patterns diverge, act accordingly and defensively. In this case, we recommend using a stop loss even for long-term holdings. But our guess is that this will not come to light until a few months.

 

 
Weekly chart of the OMXS 30 between the 27th of April 2012 and the 28th of April 2017                  source: Aktiespararna

 

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.