OMXS30 ready to take off..?

10.01.2018 | 2 Minimiera

Last week the OMXS30 bounced up from a technically oversold level. Whereas in the weeks prior, the index has been weak, and stuck in a short-term downtrend. Pestered by a shaky housing market, MIDFID II preparation and H&M lacking potential for growth. Despite this the long-term trend is still pointing upwards, and could be potential for a strong earnings season in the second half of January.

The NASDAQ OMX opened the year with a strong week on the buy side. Even though the volume was relatively low coming off the holiday season. The OMXS30 saw a gain of 2,2% the first week, and closed at 1611,31 on Friday. Compared to the gains for 2017 which totaled 3,9%, 8,4% when including dividends.

The gloomy mood of trade the past weeks could be attributed to the worries about the Swedish housing market, which seem to have made foreign investors sellers of the OMXS30, but also the Swedish currency. The institutional investors have also had their hands full adapting to the new MIDFID II regulations. All MIDFID II adaptions should be made and ready by January 3rd.

Skanska and H&M were the two stocks that pulled down the index the most in the last month, H&M has seen its share price drop by 17% and Skanska 8% since the beginning of the last month. Worries are mounting that H&M largest growth period is behind them. The companies profit margins have been downgraded and the analysts are not excluding a potential drop in dividends.

The US market looks strong. As long as they lead the way there is still hope for the OMXS30 to bounce back in a more powerful way. It is usually tough for a smaller market like the OMXS30 not to follow suit when the US markets are strong. They are the leaders.

The earnings season is just around the corner and could give boost to an increase of activity for market participants. The international economy looks to be going strong which could benefit global large-cap companies reports.

The long-term trend for the OMXS30 is still pointing north, even if the index has shown some signs of weakness. The index has been below the psychologically important support level 1600, and below its 40-week moving average.

Weekly chart of the OMXS30                                                source: Infront

If the OMXS30 establishes itself below support of 1573 and 1518, more weakness could be expected. However, if the index can establish itself above resistance levels of 1614, 1682 and 1720, alongside an increase in volume, more strength could emerge.

The weekly stochastic indicator is approaching a technically oversold level, and this could increase the likelihood of a bounce to the upside.

In the daily chart below we can observe the OMXS30 in a downward moving trend channel. Resistance rests at 1614, and support rests at around 1570-1573.

Daily chart of the OMXS30                              source: Infront

Also in this chart, more strength could possibly emerge if the index can establish itself above 1614 alongside an increase in volume. If this would occur, the OMXS30 would find itself above the long-term important 200-day moving average.

If the index finds enough strength and breaks trough resistance at 1640 and 1682, the OMXS30 could possibly clear ground and move to higher levels.

The stochastic are also showing strength, coming off its technically oversold levels and moving north. This should only be seen as a prelude of what might lay ahead. The important point is to break through 1614.

Should the OMXS30 establish itself below support at 1570 and 1560, more weakness could be just around the corner. Next support rests at 1518.

In the hourly chart below, short-term strength is shown. Last week the index showed some interesting signs of strength.

Hourly chart of the OMXS30                              source: Infront


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