Column: OMXS30 Analysis week 14
Strength appears in OMXS30 – Can the momentum pick up?
Nasdaq OMX traded slightly higher last week, during low trading volume. OMXS30 gained +0.5 percent, and the week ended at 1587.63. So far the index has gained +4.6 percent this year. Adjusting for dividends of stocks listed in OMXS30, the index gained +1.6 percent last week, and +6.5 percent this year.
Last week the OMXS30 lost ground due to dividends in Ericsson, Getinge, Handelsbanken, SEB, SKF and Swedbank. This pushed the index lower with 17 points, roughly 1.1 percent, due to the fact that OMXS30 does not adjust for dividends.
Last week it was time for H&M to deliver quarterly report, which increased the market volatility. The stock traded between 227.7 and 244 kronor during the day, but ended the week at 4 kronor lower at 229. This means that OMXS30 was not in the end affected by the stocks volatile movement.
The market continues to shake off negative news. Possibly the market will continue to stand still slightly longer, before continuing moving higher along the long-term positive trend. Not even the negative outcome when the U.S president Donald Trump lost its health care reform could stop the market from trading higher. Though there is some worry of upcoming reforms and tax reduction, and the capital promised for infrastructure.
We consider the current resistance for the market to move higher, coming from moving capital in bonds to stocks from institutional investors around the globe. This moves the market considerably, when capital of several hundred billion USD is transferred.
The long term-trend for OMXS30, which we define as the momentum in 200-day moving average, is continuing to show positivity. Except when the market traded lower during high volume when Fingerprint chocked the market with profit warning, we continue to generally see a positive volume pattern.
Daily chart of the OMXS30 between the 18th of November 2016 and the 31st of March 2017 source: Aktiespararna
The short-term trend, the momentum in 20-day moving average is now showing positivity. Another positive sign is that the index continues to close around daily highs.
Medium-term OMXS30 continues to consolidate, and support level awaits around 1551-1560, along with resistance level of around 1603. Though during the consolidation, dividends causes temporary market divergence.
Adjusting for dividends, the stock index has clearly gained buy signals by trading over yearly highs. This has however not happened during any considerable volume increase, so the signals in its self is not as strong yet.
But do not be surprised if OMXS30 sooner or later starts to trade above yearly high of 1603.
Should OMXS30 establish ground above 1603 during high volume, preferably above 20 billion kronor, then a strong buy signal will be triggered. In this case we are looking at the market to trade higher at around 1630-1670. Even testing previous all time high 1720 , would then be in the ballpark.
If the market would trade above 1603, during low trading volume thesignal in itself is considered weak. In this case we are only looking for the market to gain a couple of percent, which could lead to another consolidation similar to the one currently being experienced.
Should OMXS30 start to trade below support level of around 1560 and 1551, sell signals would be triggered. If the market would trade below these price levels during low trading activity, we consider these as potential buys for the long-term investor. Only if the market would trade below these price levels during high trading activity, would this be considered a warning sign from a long-term view.
When looking at the stochastic indicator, there is still room for more gain before OMXS30 is considered to be overbought. Adjusting to dividends, the index is however overbought. The indication in itself is not a sell signal,
since the stock index can continue to be overbought during a longer period of time when the market is strong.
Looking at the hourly chart below, we can see that OMXS30 triggered short term buys, when it started trading above 1587. Next significant resistance level in this perspective is around 1603.
Short-term sell signals would be triggered if OMXS30 would start trading below support levels of around 1587, 1570 and 1551.
we recommend to be more careful when it comes to larger shorting positions, as long as the market keeps ground above support level 1551. The long-term trend is still positive, and the dividend
adjusted index has already been trading above yearly highs.
Should OMXS30 start to trade below support level of 1587, a short-term sell signal is triggered. In this case look for the market to trade lower towards 1570 and around 1551. Consider using a stop loss if OMXS30 trades above
Currently the latest short-term signal was a buy. Therefor we are looking for the market to trade higher, and challenge resistance level of 1603. Should the market trade above this price level, another buy signal would be
triggered. If this happen during relatively low trading activity, we suggest using a closer stop, for the short-term trader. Consider using a stop loss at previous day’s low, or even closer within the low of the closest hour.
Should we experience a break-out during high trading volume, we look for the market to trade towards 1630-1670.
For the long-term investor, we continue to recommend being positioned for the market to trade higher.
If possible, consider increasing positions when the market trades lower during low volume.
This applies as long as the volume pattern is still positive, as well as when the long-term trends are still positive. If these patterns would start to diverge, we recommend to use a stop loss even for the long-term investor.
Weekly chart of the OMXS 30 between the 5th of Janurary 2012 and the 31st of March 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.