OMXS30 at significant support level

04.07.2017 | 1 min lukea
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OMXS30 is now located at a significant technical support level around 1600. Should OMXS30 start finding ground below this price level, this could potentially be a negative indication for what is up ahead.

Last week Nasdaq OMX fell during a week of increasing trading activity. OMXS30 fell -2.6 percent, and closed the week at 1602.53. Yearly gain is now reduced to +5.6 percent, +8.9 percent considering dividends.

Weekly chart of the OMXS30 between the 29th of June 2012 and the 30th of June 2017                              source: Aktiespararna

Not only Swedish OMXS30 moved lower. Due to bearish comments from several central banks, this caused the international financial markets to raise concerns. This could also be an early indication, that the highly stimulated monetary policy is about to come to an end.

This could potentially cause interest rates to move higher, to more normal levels, after central banks stops printing money. This also means, that in order for stocks to defend their gains, relatively strong quarterly reports need to be delivered.

One risk factor that we have previously highlighted, could be the weakness in the U.S dollar. Generally stock markets prefer a strong U.S dollar. Many countries have products being exported, that could benefit from a stronger dollar. U.S has such a low import and export relative to their own economy, which means they are not as bothered by a strong U.S dollar.

The last few months the U.S dollar could have triggered negative signals, and was on Friday trading around 8.43 SEK. Compared to last December, the U.S dollar were at 9.40 SEK, highest level in 15 years.

The weakness in the U.S dollar, might be an effect of the increasing problems that the U.S president Trump has, when it comes to stimulus reforms, tax reduction, as well as a lower expectation when it comes to state of the market.

One stock within OMXS30 that benefits from a weaker U.S dollar might be H&M. The stock was also among the few companies that noted gains last week. This was likely due to the strong quarterly report, when it beat expectations as well as gave positive comments around its online market business.

Despite last week’s weakness, the long-term trend for OMXS30 is still likely to show signs of strength. The 200-day moving average, which is currently located at around 1542 is still showing strength, and the index is still in a long-term pattern of higher highs and lows. On a more short-term view, the index could be stuck within a consolidation-area around 1600-1657.

Weekly chart of the OMXS30 between the 30th of January 2015 and the 30th of June 2017                              source: Aktiespararna

In our weekly chart above we clearly see that OMXS30 is now located right above technical support level around 1600. Should OMXS30 find ground below this price level, especially in a scenario where the market turnover is relatively high, at around 20-25 billion per day when moving lower, could be a potential strong negative signal. If this would be the case, it might mean that we could see a move towards technical support levels around 1540-1550.

In order for the long-term positive view to get even further fuel, the index would have to find ground above technical resistance level at around 1657. In this case we could, if the momentum is in our favor, potentially experience a move towards previous all-time high around 1720.

Potential positive or negative indication would get less significance, if the index found ground above or below technical key levels during low market activity. Instead, this would then increase the probability of a false breakout.

In our daily chart below,potential negative indication could have been triggered, since the index moved below technical support levels around 1626 and 1616.

Daily chart of the OMXS30 between the 2nd of February 2017 and the 30th of June 2017                              source: Aktiespararna

In this chart, we can see that the index broke the long-term trendline (the dotted line) which we added in the weekly chart above. The potential negative indication, were triggered during a scenario of low trading activity. This however, could still increase our alertness for any sign of weakness.

The short-term trend, which we define as the angle of the 20-day moving average (red line), could be showing signs of weakness.

OMXS30 is however, located at the significant support level around 1600, and Stochastic-indicator is indicating that the market is likely to be oversold, as well as the upcoming weeks ahead, could be historically a period of strength. This increases the probability that the index could stabilize around 1600, and possibly move higher.

Considering an even shorter timeframe, the hourly chart below for OMXS30 might hold resistance levels around 1612 and around 1620.

Hourly chart of the OMXS30 between the 5th of June 2017 and the 22nd of June 2017                              source: Aktiespararna

To receive any kind of possible confirmation, that the technical support level around 1600 is solid, a reversal or any other positive momentum would have to appear. This could potentially open up for a move, where the index would find ground above technical resistance levels around 1612, and around 1620.

Should this happen during a time, where the trading activity is relatively high, this could possibly be an indication of continued strength. If this was the case, we would foremost looking at technical resistance levels around 1630, 1645 and around 1657. Further positivity would come to light, if we would experience a breakout above 1657.

If OMXS30 would move below 1600, this might be a potential sign of an initial move towards 1585. Secondly this could also possibly be an indication of a further lower move towards technical support-area around 1540-1550. Currently OMXS30 is likely to be oversold, which also indicate that the index could get a correction and move higher, quick and strong.

Based on a short-term view, finding ground above 1612 and around 1620 would be positive, this could also lead to a revisit of 1630. If we would experience a move above this price level, even 1645 is in the ballpark, as well as 1657.

For the investor with a more long-term view, OMXS30 could be currently located at around an important support level around 1600, and even if the long-term trend is still showing signs of strength, the risk has increased considerably the last few months. Volume patterns, U.S dollar, large number of stocks as well as international stock index is showing signs of potential weakness in the market.

In order for our positive sentiment to be challenged, the index would have to find ground below the technical support level around 1600.


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