Column: OMXS30 Analysis week 19

11.05.2017 | 1 min lukea
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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.

During a week with one less trading day due to the holidays, OMXS30 gained +0.9 percent, and closed the week at 1642.04. Since the beginning of the year the index has gained 8.2 percent. Considering dividends, the last week’s gain was +1.1 percent, which means +11.3 percent since the beginning of the year.

The market was a bit on hold before Sundays presidential election in France. Even if Macron was already a winner in the polls, there was a slight gaining uncertainty amongst investors.

The report season is also coming to an end, which meant last week only three stocks within OMXS30 reported earnings. Skanska had a neutral outcome in the market, whereas Securitas was a big looser with -5.4 percent. The already cornered Fingerprint stock, fell -6.4 percent after the report.

We are now leaving the report season behind us, with an overall positive outcome. This could be sending positivity for the upcoming three months. However, next report season in July will have to show a stronger result then expected.

There could be a risk, more correctly an opportunity for the market to trade higher until then. If this would happen, and stocks were trading at sensitive levels, the scenario could be a bit more unstable.

If the market should trade in a more over speculated position during the 3rd quarter, we will at least increase our cautiousness. One could consider selling if the 20 day moving average is starting to show weakness (pointing lower), starting with long-term index- and stock holding. Especially if the volume pattern starts changing from a more neutral to negative position.

Currently it still seems to be looking very bright for OMXS30. Both the short and long-term patterns are showing strength. The trading activity, the round turn is higher during days when the market moves higher, then during the days moving lower. Strong buy signals could also have been triggered for OMXS30. Last being, when resistance of 1585, 1591 and 1603 were broken during high trading activity.

Daily chart of the OMXS30 between the 10th of January 2017 and the 5th of May 2017                              source: Aktiespararna

Smaller resistance levels around 1660-1670 exist, but are not likely to be a major issue. Perhaps only a smaller pause, as we see an even bigger resistance at previous all-time high at around 1720. At this level, it would not be surprising to see selling, to cash in on long positions. As this is also a psychological price level, it would not be surprising to see some hesitation at this historically high level.

Weekly chart of the OMXS 30 between the 12th of December 2014 and the 5th of May 2017                               source: Aktiespararna

Should OMXS30 find ground above 1720 during high trading activity, another strong buy signal may be triggered. This could potentially trigger a strong momentum effect, where buyers quickly jump to the market.

According to statistics, short positions are at record levels on Nasdaq OMX. How will sellers react, if OMXS30 starts finding ground above its previous all-time high? Do they dare to stay put, or will they start to panic and close their positions?

It is not hard to consider a significant move to the north, followed by a 3rd quarter which could lead to an over speculated market. Though this is just a hypothesis, and it is important to verify along the way, if it gets confirmed or not. Because “The trend is your friend. Until it bends…”

OMXS30 could trigger sell signals if support levels around 1632 and 1603 would break. Days when the market is moving lower during relatively low trading activity, significantly less than 20 billion per day in round turn, is still considered as potential buys for the long-term investor.

The Stochastic-indicator is still showing OMXS30 to be overbought. However, this may not be seen as a sell signal by its own. The index can be, for a considerable time overbought if the market is trading in a strong positive trend.

Looking at the more short-term hourly chart below, we clearly see that OMXS30 has triggered several short-term buy signals. Support levels in the hourly chart exist at 1638, and around 1632.

Hourly chart of the OMXS 30 between the 18th of April 2017 and the 5th of May 2017                  source: Aktiespararna

For the short-term trader, it might be interesting to be positioned for the market to continue to move higher, as long as the short-term positive trend is intact, currently at 1632. Potential investors could consider using a stop loss, just below this trendline.

First and foremost, one could look for the market to trade higher towards resistance levels at around 1660-1670, and secondly all time high at around 1720.

Should OMXS30 start trading below support level at around 1632, you could consider positioning yourself for a test of the support level at around 1603. It might be recommended to be a bit more careful with larger positions, when the market moves lower, even if a support levels are broken. Because the long-term trend is still strong, as well as the positive volume pattern is intact.

For the more long-term investor, it might be interesting to be positioned for the market to move higher. During days when the market is moving lower, during lower trading activity, potential investors could consider these as potential buys, if there is still room for increasing the position.

This strategy could apply, as long as the long-term trends are still strong, and volume pattern is positive. Should these patterns break, we recommend a stop loss even for the long-term stock- and index holdings.

Weekly chart of the OMXS 30 between the 4th of May 2012 and the 5th of May 2017                  source: Aktiespararna


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