Europe Basic Resources Supersector: a trend reversal has begun?

At the beginning of October 2016, I wrote an article about the STOXX Supersector Europe 600 Basic Resources Index, and the possibility for this Index to start an intermediate uptrend. From that period we had an increase of about 36% until late February 2017, and now we are in a retracement window that started on February 22th with a drawdown of about -13%.

To better understand the performance of this Supersector it is advisable to take into consideration the historical graph prices of the last twenty-seven years.

Graph 1

As you can easily see, the index began a secular long term uptrend from October of 1992 with a trend line that was regularly touched in October 1998 (1) and in December 2008 (2); in August 2015, the price broke the support line (3) and a pullback followed (4). In August 2016 the index tried to attack, without success, the trendline that historically was his support and that turned into a resistance (5): at the end of October 2016 we had a new attempt that was resolved with an upcross of the secular trendline (6) and a good uptrend developed in the following months. In late February when the Index arrived to the level of July 2014 lower high (7), it began a retracement (8).

Graph 2

If we move to a medium-term chart, starting from 2008, we can see that prices have passed the resistance of the historical long-term downtrend line, and now they are returned on it. This level also coincides with the 200-day moving average (1), So we could be at a point where prices could begin to consolidate. Next support is represented by the secular long term uptrend line (2), that coincides with a 38,2% retracement of Fibonacci.

Graph 3

If we consider a graph of the last five years, we notice that we have also another third and important support: the 330 level is the neckline of a bullish pattern of an inverted head and shoulders and the 50% Fibonacci level retracement is very near. Moreover it has been a good support for the index in July 2013 (1) and December 2014 (2): It is reasonable to think that this is the last support where we can consider the rising intermediate trend still intact.

Mario Valentino GUFFANTI – SAMT Vice President – Lugano Chapter – mario.guffanti@samt-org.ch

Disclaimer: the above article is for general information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.