The stock of Swedish Telecom company Ericsson (ERICb:xome) is relatively weak as it is buried within a strong down trend that has, in large, been in place since the peak in late March 2006.
The latest swing lower commenced off the April highs last year, and for a conclusion to this downtrend we are from a time cycle perspective looking for an end to this cycle with a relation to the peak set back in April last year.
Such a relation could have occurred on May 20, but price has managed to deny this as a valid low. The next possibility is August 12, and maybe there might be something going on here.
From a price perspective the indications are for this downleg to be able to reach into the high end of the SEK 40-SEK 50 range in due time.
Looking at the chart of Ericsson we can see how the market through August has been moving in a tight range, we will soon breakout of this range.
A break lower would negate the possibility of the time around August 12 low as an important one and would open up for a decline into the next time cycle window around November 11 - with a price target possibly as low as SEK 49. A break higher would set up for at least a short term burst into SEK 65 and SEK 69.
When we see the Ericsson's chart it is easy to be bearish, but often the market like to make a head fake before the real move.
Management and risk description
Ericsson looks like a coiled spring ready to move. The bullish plan is to buy a break above SEK 63 with a stop at SEK 61 for a move higher into resistance at SEK 65 and SEK 69.
Once price has established itself above SEK 65 the stop can be moved higher. Either to entry (around SEK 63) or a stop upon a daily close below SEK 65.
The bearish plan is to sell a daily close below SEK 60 with a stop at SEK 63 and a target of SEK 57, SEK 53 and SEK 49. Once the SEK 57 level has been taken out one can start to move the stop lower.
Entry: Buy a break above SEK 63
Stop: SEK 61
Target: SEK 69
Time horizon: One to four weeks
Entry: Sell a daily close below SEK 60
Stop: SEK 63
Target: SEK 57, SEK 53 and SEK 49
Time horizon: One to seven weeks depending on target
ERICb:xome daily chart
ERICb:xome daily development chart
Source: Both charts, Saxo Trader - create your own charts with SaxoTrader. Click here to learn more
— Edited by Adam Courtenay
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Non-independent investment research disclaimer applies. Read more