Last week we were able to highlight the likelihood of a further rise in the share price for power and automation company ABB (ABB:xome). Even though the trade as such became a bit difficult to enter in a proper way, the analysis appears to have been correct, as the stock rose into the key cycle date of May 27.
On Friday, the price hit the SEK 176 level and managed to trade just above that before closing at SEK 175.90. The connection between price levels and cycles are interesting, as the rise off the January 21 lows and the May 27 rise so far has taken 127 days. This number has a direct relationship with the SEK 176 price on the Gann wheel. The stock could very well experience trouble at this area, now that time and price have become aligned.
The alignment is telling us that we are at an inflection point and ideally price should now go into reverse. A bearish close on Monday would give a further signal that there is a reversal in the making. Resistance is now found at SEK 176, SEK 180 and SEK 186. Support is found at SEK 172, SEK 167 and SEK 160.
Even though there is not a divergence in the daily chart between oscillators and price readings, these reading have reached lofty levels from where they could reverse. Perhaps even more interesting is the daily close outside the Bollinger Bands® signaling a short term overbought condition.
Management and risk description
The plan is to be on the lookout for a reversal in this stock and to sell ABB:xome short at market upon a bearish close today. A bearish close will be defined by a close at or even below SEK 175. The targets are SEK 167 and SEK 160. The stop is a daily close above SEK 176.
Once we break below SEK 172, we could start to lower our stop.
The main risk to this setup is general stockmarket strength.
Entry: Sell below SEK 175.
Stop: Daily close above SEK 176.
Target: SEK 167 and SEK 160.
Time horizon: One to five weeks.
ABB's daily chart
ABB's daily development chart
Source: all charts Saxo Bank. Create your own charts with SaxoTrader; click here to learn more.
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