OMXS30 continues to show weakness as the downturn looks to fade out

19.12.2017 | 2 min lukea

OMXS30 finds itself in a downtrend on the shorter timeframe, and has parked beneath the 200-day moving average.

The NASDAQ OMX turned south last week on and increase in volume. The Large-cap index ended the week on 1594,35 after a downturn of 1,0%. Gains for the year now total 5,1%, and 8,9% when included dividends.

Most of the downturn came on Friday after H&M (weighs heavily on the OMXS30 index) showed substantially lower than expected sales numbers from September to November. Instead of the expected 5% increase in sales, the result was a negative 5%. The stock fell sharply 13% on heavy volume of 7 billion SEK.

Skanska saw itself downgraded by analysts, along with SSAB who had to adjust their financial targets continued to fuel Friday’s downturn.

From an international standpoint the market climate has been calm the prior week. US markets have been stimulated by the tax reform that looks to be passed by the senate, and the house of representatives. As long as the US markets are showing an upwards moving trend, the Swedish markets are seldom gloomy for too long. This could be comforting to the bulls considering the way the OMXS30 has been moving as of late.

An tempt to make some sense of the current harsh market climate in Sweden:

Foreign investors are currently on the side-lines as worries of the stock market, the Swedish currency and the fear of a looming housing bubble continues to boggle their minds. They might fear all these factors could weigh heavily on Swedish banks, and that a chain reaction could potentially hurt the Swedish economy.

Swedish institutional investors have their hands full adapting to the new MIDFID II regulation.

Many Swedes who have participated in the housing market now find themselves in a situation where buyers have the upper-hand. Prices have leveled off, it takes longer time to sell property, and banks have stricter requirements on their loans. One can no longer use the property as an ATM machine. Instead one might feel pressure to sell off other assets, such as stock and bonds to cover the new requirements set forth by banks.

There are also a lot of people who are buying Bitcoins. The word is out and it doesn’t take very long before talk gets going; in bars, taxicabs, or on social media, the word is out about the new “Wunderkind” asset.

These could all be reasons why the Swedish stock market is currently on a dry spell, finding it hard to break ground to the upside. On the other side of this stands and a strong global economy, which should fair well for international Swedish companies. Should they increase their profits, their asset prices might follow suit.

On a short-term timeframe, real estate companies listed on the Swedish stock exchange might be ready for a bounce north. This could be psychologically important for the stock market as a whole.

The long-term trend for the OMXS30 also points to the north, although it’s starting to technically look a bit more reserved. Price still rests below the 40-week moving average, and the MAV is pointing up.

Weekly chart of the OMXS30                                                source: Infront

The defined trend of higher highs and higher lows remains intact as long as the index can hold itself above 1518. The OMXS30 has shown some weakness when breaking through support at 1600 a few weeks ago, this makes this chart all the more uncertain. Next support level on this larger timeframe rests at 1500-1518.

In order for this weekly chart to look better for the long haul, the index has to establish itself well above 1600, along side an increase in volume. To confirm this view, it has to establish itself above resistance at 1682.

In the daily chart below, an increase in technical weakness can be observed. The index is now in a consolidation phase between 1629 and 1640. The short-term trend, as defined by the 20-day moving average, is currently pointing south.

Daily chart of the OMXS30                              source: Infront

The long-term trend, the slope of the 200-day moving average, tells the same tale as the 40-week MAV. It has not yet turned down, but it does look a bit more uncertain. Uncertainty remains as long as the index rests below the 200-day MAV, and the stochastic are also starting to turn south.

More weakness can be confirmed if it manages to close below support around 1585-1591. There is however support around 1582, but if support is breached at 1585-1591, the move might continue to test support around 1560.

If the OMXS30 find some new strength, and resistance at 1629 and 1640 is breached, it could present an interesting scenario, and make a case for more strength to come.

The stochastic indicator gives some indication that the downturn move might be staring to fade out. When the OMXS30 hits news lows, the stochastics are at the same time making higher lows. This so called, positive divergence, could indicate that the new lows are losing their conviction.

The hourly chart below could indicate that the OMXS30 showed more signs of weakness, when the support around 1591 was taken out in haste. Though the index rebounded in a moments notice.

Hourly chart of the OMXS30                              source: Infront


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