OMXS30 about to trigger a summer rally…?
OMXS30 is still considered to be trading within a long-term positive trend. On a more short-term view, OMXS30 could be consolidating.
Last week Nasdaq OMX moved slightly higher, during a shorter trading week due to Midsummer celebration. OMXS30 gained +0.6 percent, and closed the week at 1645.36. Since the beginning of the year, the index has gained +8.5 percent, +11.8 percent if we consider dividends.
Weekly chart of the OMXS30 between the 8th of June 2012 and the 16th of June 2017 source: Aktiespararna
We experienced a relatively low news-event driven market last week, and most stocks within OMXS30 moved irregularly. The movers were Alfa Laval, Astra Zeneca, Atlas Copco, Electrolux and Volvo. However, Getinge and especially the index heavy Swedish banks moved lower.
Based on a long-term view, OMXS30 could be trading within a positive trend. In the weekly chart below we could see a pattern of consistently higher highs and lows.
Weekly chart of the OMXS30 between the 30th of January 2015 and the 22nd of June 2017 source: Aktiespararna
Based on a more short-term view, the OMXS30 index could be consolidating since middle of May. Important technical support levels are believed to be located around 1600, and resistance levels around 1657.
Based on a more short-term perspective, the OMXS30 index is still trading within a consolidation, between technical support area around 1600, and resistance around 1657. Last week the index challenged resistance, but was never trading higher than 1657.2, which also turned out to be the turning point, as the index did not have the strength enough from buyers to keep trading at this price level.
OMXS30 could get a trigger with positive momentum, if the index during increasingly higher trading activity would find ground above this resistance level around 1657. In this case this might be an indication, that we might go as high as to test all time high around 1720.
Last week we experienced a higher breakout in OMX30. The index moved up to a new yearly high at 1658.9, but never closed above the technical resistance level at 1657. The index also moved as low as 1631.3.
Last week was also the end of a historically weak period, which not uncommonly ends at Midsummer. After this period, it is quite common that we might experience a strength in the market, which could reach a top around end of July or August. This means that we might experience a trigger already today, for a higher move. It is important to note that this is however, a pattern of historical movements, and does not have to apply now, nor in the future.
Another interesting highlight is that the market was pretty stable during a time of not uncommonly weak period. This could be an indication of underlying strength in the market
Should the market start to move higher, it will be very interesting to see if commodities, long-term interest rates and the U.S dollar will be given strength. If this is the case, the strength would most likely be from companies within industry and commodity sector, and probably even banks. Otherwise it would most likely be driven by pharmaceutical, property, tech or gaming companies.
Should OMXS30 however start to move lower, especially below technical support level around 1600, during a state when the volume is relatively high, this might be a negative signal of what could be up ahead. In this case we might have to start keeping a closer eye on the next significant support area around 1540-1550.
Daily chart of the OMXS30 between the 30th of January 2017 and the 22nd of June 2017 source: Aktiespararna
In the daily chart above we could see that there are some interesting support levels right above 1600, around 1626 and 1616. The long-term trendline is likely to be located around the support level at 1626. Another interesting support level is the 200-day moving average, which is not only within a positive state but also located around 1537.1. If the market state continued, this moving average could soon join the support levels around 1540-1550.
Stochastic-indicator is still within a neutral position, and does not give us any clues of where the next breakout will be.
We have previously noted that the probability is higher that we could see the market moving higher, along the long-term positive trend. We are currently keeping a close eye on the technical resistance around 1657, since if we start to find ground above this price level, this might be the positive indication we are looking for in order to make new highs.
We are especially considering the volume pattern in this case, as the potential positive or negative signal is enforced if they will arise during a time of relatively high trading activity, meaning the volume. Otherwise the potential signal could be a sign of weakness. However, the future development remains to be seen.
Hourly chart of the OMXS30 between the 5th of June 2017 and the 22nd of June 2017 source: Aktiespararna
Because if OMXS30 starts to trade below the technical support level around 1638, this might be a potential trigger of an even lower move towards 1630, 1626 and 1616.
Based on a more long-term view we consider 1600 to be a more important support level. The risk is believed to be increased, because the index experienced a few trading days when the market during relatively high volume moved considerably lower. However, if OMXS30 would find ground above 1657 during a time of strength, this could override these risk factors.
All in all, we are keeping a close eye on the volume pattern during times when we test or find ground above or below key technical levels.
Important legal information
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.