AEX Index: Decidedly bearish

2 AUG 2018

The market has been thrown back for the third time this year by the 572 area. Even though the earlier pullbacks haven’t led to a major down trend, the situation is considerably less friendly this time. Strong downtrends are in progress in (for instance) Korea, Italy, Spain, Israel and most commodity markets. Also, increased weakness is seen in Germany and the US. Even though the AEX has been a outperformer in Europe, chances are next to zero that the index will be unaffected by developments elsewhere. Poor performance from the banking sector doesn’t help either.

We expect a drop back to at least 558.50 over the coming days. Clearing this area means the correction turns into a full swing down trend, which could easily bring prices back to 516 and the 480-cluster by Q3.  Due to aforementioned weaknesses in commodities, technology, banking and broader indices elsewhere, we have a high conviction of the scenario unfolding.

Stops can be maintained nearby: prices should now rally above the flush-high of 577 again.

  • Primary trend: neutral
  • Outlook: negative, correction expected
  • Strategy: exit-long / trading short-entry
  • Support: 558.50 / 554 / 516 / 480* / 455.80*
  • Resistance: 572
  • Outlook cancelled/neutralized above 577

Weekly Chart AEX-Index

26 MAR 2018

The outright bearish near-term outlook as described last week (see update of 19 March) is significant. Prices have formed the right shoulder of a huge weekly Head & Shoulder reversal pattern with key support at 516. Clearing this level means the start of a long-term bear market targeting 466 (pattern projection) and 455.80 (162% extension). In either case very significant down side potential. General market dynamics certainly warrant such a negative move; there is no sector strength at all and virtually all individual stocks look horrendously bearish.

We are already well positioned for a protracted negative market. Our plan is to maintain short until 466 (close 50%) and hold-short the remainder with trailing stops. We will update this position here on the website as markets develop.

  • Primary trend: negative
  • Outlook: very negative, major down trend below 516
  • Strategy: hold-short and/or short-entry
  • Support: 516 / 466* / 455.80*
  • Resistance: 532.50 / 540
  • Outlook cancelled/neutralized above 540

Weekly Chart AEX-Index

19 MAR 2018

The near-term outlook (420-minute intraday) feel very heavy: the recent swings have been fierce but remain below the 50% retracement at ~540. Clearing minor triggers at 532 should ring in a renewed sell-off towards 528.40 and roughly 520 without too much effort. With stops above 540 this is a very favourable short-setup.

For the longer term things have become a bit tricky. Albeit premature, the weekly chart does show the contours of a large H&S reversal pattern. It is not our favourite pattern, but the location and symmetry are noteworthy and should be taken into consideration. Furthermore, virtually all underlying stocks are bearish to varying degrees with the exception of Ahold-Delhaize and Philips Lights. In other words, there is a lot of market breadth for a considerable decline.

We suggest shorting the near-term and covering only partially at 520. Maintain the rest of the shorts with (liberal) trailing stops. 480, 458.50 are realistic targets if the H&S actually pans out over the next weeks.

  • Primary trend: negative
  • Outlook: consolidation, trend resumption below 532
  • Strategy: short-entry < 532
  • Support: 532 / 529.55 / 520* / 512-
  • Resistance: 540+
  • Outlook cancelled/neutralized above 540

420-minute Intraday Chart AEX-Index