Europe Basic Resources Supersector: an index to watch closely
The STOXX Supersector Europe 600 Basic Resources Index, has been in the last years, one of the most underperforming indexes in the group of the 19 European Supersectors group. Since January 2008 he had a performance of -51,29%, and only the banking sector had a worse result with a -65,80%. The DJ Stoxx 600 had a performance in the same period of -5,67% and the Food & Beverage Supersector had the best performance of the group reaching +91,43%.
But in the last 37 weeks, starting from mid-January, things have changed for this Supersector, that had a significant and continuing rise of about +67% (close to close).
To better understand the performance of this Supersector is advisable to take into consideration the historical graph prices of the last twenty-six years.
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 and in December 2008; in August 2015, the price broke the support and a pullback followed. In August 2016 the index tried to attack, without success, the trendline that historically was its support and now has turned into a resistance: in the last few weeks we had a new attempt.
If we move to a medium-term chart, starting from 2008, we can see that prices have to overcome the historical long-term trendline resistance, but there is a medium-term static trendline at a level of 330, that the index has freshly broken in the last days.
If we consider a graph of the last two years, we notice that some elements can play in favor of a rising intermediate trend: we have a bullish pattern of an inverted head and shoulders and a 200-day moving average with a decisively positive inclination; the price is growing from mid January in an uptrend represented by the pink line, touched by the rising lows four times, the last time at the end of a consolidation pattern represented by a broadening formation (1).
Another element to consider is also the relative strength ratio of the index, compared with DJ Stoxx 600, which penetrated its 200 days moving average; and the moving average itself has reversed with a good positive inclination.
Obviously these are just indicative elements, but not conclusive: we need that the prices begin to consolidate around the 330 support line zone and then try to penetrate the 400-450 level (see Graph 2, the yellow area), to have the opportunity that this trend can move to something similar to what happened in the end of 2008.
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.
Mario Valentino Guffanti
SAMT Vice President – Lugano Chapter – mario.guffanti@samt-org.ch
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