Column: OMXS 30 week 8

Last week Nasdaq OMX were trading slightly higher, under relatively low volume. The Swedish stock index OMXS30 gained +0.5 percent, and closed at 1570.59. Since the beginning of the year the index has gained +3.5 percent.

Report season is now coming to an end, and during last week amongst companies listed in OMXS30, only Swedish Mach reported company earnings, and in this case the report reaction was negative. The overall outcome of company earnings these past few weeks has however been positive.This signals positivity to the market, and should contribute to a positive momentum during the upcoming months.

Last week OMXS30 also received new buy signals, when the stock index started trading above resistance levels at around 1564 and 1568 points. Though we do not currently see a big momentum when OMXS30 has been trading higher, and the volume is also not that high. Does this signal that the positive momentum for OMXS30, that has been trading higher since last summer is about to end? In this case, we have to keep a close eye to potential sell signals. Especially if these are triggered during high volume.

source: Aktiespararna

Our Stochastic-indicator shows that OMXS30 is currently overbought. OMXS30 can however continue to be so for a longer period of time, as long as the market is showing strength. If support level around 1564 is to be broken, during high trading volume around 20 billion a day, recommendation is to be a bit more careful. Though significant sell signals are only triggered if support around 1499 points are broken during high volume.

Overall our case is still positive, and overweighs the negative factors, as our last signals shows buy, even though a bit more careful and nothing less. The long-term trend of 200 day moving average as well as the short term 20 day moving average shows clear positive signs. The last few months the trading volume is also showing positive signs, even though the last couple of weeks shows a bit lower volume.

During a consolidation phase, like the one we have experienced since December is normally trading within the same range around the same price. In this case however, the market has slowly been moving higher, which we consider to be a sign of underlying strength. Realistically the market is showing potential upcoming breakouts later this year, with a more significant higher move. In this case investors that are currently short, would have no choice but to liquidate their position.

In such a scenario, long-term investors and institutions that has been positioned for the market to rise in bonds, would be more likely start to worry about rising interest rates, and rising inflation. This is bad for bonds, and in order to protect capital they would be forced to increase their stock exposure. Because of the capital flow that goes into the bond market, a minor portfolio adjustment could trigger the stock market to move significantly higher.

If the market starts to trade lower during low volume, and OMXS30 starts trading higher during high volume and triggers new buy signals, is a sign for this. Currently we are waiting for the market to show a clear direction. Short-term a new buy signal would be triggered if resistance of 1581 are broken.

 source: Aktiespararna

As long as we receive no sell signal below 1564 for OMXS30, sooner or later we believe a buy signal will be triggered, and that OMXS30 primarily will trade higher towards 1600 points, which will be psychologically hard to break. If the market starts trading above this price level, first and foremost we are looking at upcoming resistance levels around 1630-1670.

For short-term investors, we currently consider the market to trade higher, as long as support levels are not broken. Consider buying at around support level of 1564. Stop loss should be taken if OMXS30 starts trading below 1564, as we consider this as a sell signal. In this case, we see the market to trade lower towards 1540 and then 1526. The same case applies if the market would again find itself trading above 1564.

For the long-term investor, we still consider the market to trade higher during the upcoming months. During days when the market is trading lower, try increasing the positions for both equity and stock index, as long as the market shows low volume during the days when the market trades lower.

This applies as long as the relationship between higher volume during days when the market trades higher, and that during days when the market is trading lower is showing lower volume, but also that the long-term trends are positive as well as OMXS30 trades above 200 day moving average.

 source: Aktiespararna