Article / 16 June 2015 at 13:00 GMT

Swedish equities badly in need of a holiday

  • USDSEK unlikely to see a bull run
  • Swedish equities index appears technically damaged
  • Alfa Laval, AstraZeneca, Investors primed for losses
Stockholm
Swedish equity investors are doubtlessly looking forward to Friday's Midsummer holiday,
if only because the Stockholm market will be closed. Photo: iStock

By Johan Berntorp

Markets are getting more interesting by the day and as the equity market now appears to be closing in on a breakdown, the obvious question is how to play it? 

As of late, the SEK has strengthened against the USD and the euro and both are now trading at levels from where a short- to medium-term bounce appears likely. Concerning individual components on the Swedish equity markets, they are getting technically scary but there is also a decent chance of a notable short term bounce - the last bounce before the big break perhaps!

This week, we'll take a pause from the oscillating EURSEK to emphasise the oh-so-interesting equity market. 

Forget about a bull run

Last week I was looking for a higher low in relation to the ones set in early- and mid-May before a possible move higher (and a larger third-wave breakout). Even though it was worth looking for, however, it didn't ultimately happen. Instead, the price has managed to come all the way down to the prior lows, which could now work as support. 

In the larger scheme of things, losing the 8.15 level would most likely have longer term bearish implications for this pair. From a fundamental perspective, this would likely mean that inflation expectations in the Swedish economy would outpace those of the US economy going forward. 

Since the move from the May 15 low was a five-wave affair higher, however, and since we have completed (or are about to complete) a three-wave swing lower off the early June high, a short term bounce is on the cards. 

Such a bounce should be able to come fairly close to the 8.50 level, ideally taking the shape of a visible three on the daily chart!

The bullish case would be to argue for a larger bullish wave-four consolidation whereas bears would like to see a swift break lower following a brief and weak bounce. The target upon a breakdown should be well below the USDSEK 8.00 level.

USDSEK daily chart
USDSEK daily chart
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Source: Saxo Bank 

Two bearish scenarios for Swedish equities

That this index is eventually, in the not too distant future, going to correct in larger manner and reset the most recent bull run appears a fair opinion... the question is when. 

Is it now as you read this, or will it come in a few weeks? I have outlined two main scenarios below for what could be in store.

Bearish scenarios
Warning: these guys feature prominently. Photo: iStock

The most bullish of the main scenarios is that of a current and potential Elliott wave flat, which is derived from the opinion that the move higher off the May 7 low into the May 29 peak was a three-wave motion followed what appears to be a corrective move lower. 

If the current decline can manage not to break below the 1,557 mark in a significant way, there's a shot at a five-wave swing higher. If so, the 1,635 level should be challenged and possibly even the May 29 high at the 1,668 level. 

As noted in our currency notes, however, a strong krona might perform a weak swing higher. I wouldn't mind this, honestly, as it could be a great shorting opportunity!

OMXS30.I daily chart: the most bullish short-term scenario
OMXS30.I daily chart - most bullish scenario
Source: Saxo Bank 

The second and much more bearish scenario for the short term would be that of a truncated fifth-wave with the peak set on May 29. A truncated wave represents a failure of motive and if this is the case, then the first move lower is currently under way and could very well be about to conclude. 

What I would like to see in this case is a bounce to around the 1,600 area and from there a break of the 1,557 support. If this scenario turns out to be the one in play, it would be a bit more tricky to play as it could very well be that support is about to snap more or less immediately.

To complicate things even more, this market will be closed for Sweden's Midsummer celebrations on Friday!

In both cases, the ideal would be a bounce. In the first case, one could then short the move higher at attractive levels whereas in the second scenario the break would be the trigger.

OMXS30.I daily chart: the most bearish short-term scenario
OMXS30.I daily chart - most bearish scenario
Source: Saxo Bank 

Individual stocks: bears aplenty

Looking at the individual components of the OMXS30.I, I can't help thinking that I sure wouldn't want to be one of those stocks! The AstraZeneca (AZN:xome) head-and-shoulders triggered and longer-term bearish signals are well-founded.

This has happened to Investor (INVEb:xome) as well and Alfa Laval (ALFA:xome) could be about to ignite shortly...

Let's review those patterns to see how they unfold.

Astra Zeneca's summer slump

Pharma giant AstraZeneca appears to have a fairly clean head-and-shoulders break down and ideally this stock is now looking to establish itself below the neckline at SEK 545. As we are expecting a bounce in the main index, the expectations are similar for this stock – but this doesn't mean there's an opportunity to go long. 

From the peak set on May 29, we appear to have a motive wave lower and a bounce should ideally take the shape of a visible three-wave pattern on the daily chart and fail no later than SEK 570.

Again, this stock is weak and the expectations would be for an unpleasant extension lower. The guess is we see SEK 475 (or thereabouts) no later than late summer.

AstraZeneca daily chart
AZN:xome daily chart
Source: Saxo Bank 

A weak bounce for Investor?

Swedish investment firm Investor has left those hoping for new bull market highs in a dire position. The head-and-shoulders pattern in this stock has actually triggered twice and this could be because we are currently in some sort of correction where the overall weakness has forced one of the corrective waves below the trough of the first motive wave lower. 

Any bounce should fail around the SEK 330 level if not before, but ideally price will be contained below the neckline at SEK 320. The weaker the bounce, the deeper the next bearish leg. 

Investors daily chart
INVEb:xome daily chart
Source: Saxo Bank  

Awaiting bearish confirmation on Alfa Laval

Alfa Laval has taken the path straight down to it's neckline and has closed just below. In this case, the main neckline has a tilt, but the overall look of this stock from a longer term perspective is more bearish then the aforementioned two. 

It is in a larger downtrend since 2014 and will have to put up a good fight to thwart a bearish death cross between the 50-day and 200-day moving averages in the coming weeks. 

Short-term oscillators are pinned down and we have a five leg lower from the May 27 high which calls for a three-wave bounce. If this were to happen this stock could be in for a bearish signal when it comes back down to breach the upcoming low. 

The SEK 135 level should be the magnet once the neckline breaks down in a more convincing manner.

ALFA:xome daily chart
ALFA:xome daily chart
Source: Saxo Bank  

Edited by Michael McKenna

Johan Berntorp is a Sweden-based technical analyst and trader.
4y
DudetteUK DudetteUK
maybe silly but long SWE at 1575
4y
Johan Berntorp Johan Berntorp
Not silly I think, but possibly on pullback with a stop to allow for poke below today's low. I am pro a short term low and bounce.
4y
DudetteUK DudetteUK
I am out, too skittish

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