The share price chart for Swedish truck maker Volvo (VOLVb:xome), not to be confused with the Chinese-owned car brand, is very interesting. First of all, the decline from the May peak for last year came in a five wave swing into the January low. From such a low we should expect at least a three wave bounce, and you could make the argument that the peak set on April 21 only marked the halfway point of such an outcome.
From the April peak we now have a three-wave decline into the low set on July 6. As we can see, the relative strength indicator (RSI) has a bullish divergence and the price has been held up at the SEK 80 to SEK 81 support zone. As long as price can stay above this area, there is a chance of it reaching substantially higher levels with the nearest resistance areas at SEK 86, SEK 91 and SEK 96.
Established price action below the SEK 80 to SEK 81 area would instead be potentially very bearish for the longer term. In such a case, the January lows would be up for a test, and an area that would then most likely be breached in due time.
Management and risk description
The markets are at an inflection point, which is also the case for VOLVb:xome. There is bullish divergence on the oscillators, and interesting risk/reward price levels for a reversal higher have been reached.
The plan is to buy Volvo for a move higher into resistance at SEK 91 and SEK 96 in the coming weeks.
The risk to this setup is broader stock market weakness. Volvo report its earnings on July 19.
Entry: Buy at market around SEK 84.
Stop: A daily close below SEK 80.
Target: SEK 91 and SEK 96.
Time horizon: Two to four weeks.
VOLVb:xome daily chart
VOLVb:xome daily development chart
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