A gauge of European automotive shares, the best-performing industry group on the Stoxx Europe 600 Index last year, will drop as much as 29 percent if it fails to break above a five-year trend line, according to a technical analyst at HSBC Holdings Plc.
The price chart for the Stoxx 600 Automobiles & Parts Index has formed a pattern called a rising wedge from the beginning of the year, with successively higher peaks and higher lows converging, Murray Gunn, head of technical analysis at HSBC in London, said in e-mailed comments on Jan. 21. This bearish signal indicates that the gauge of carmakers will fail to break above a trend line connecting its intraday peak at the end of 2007 with 2011’s highest levels, Gunn said.
“There is a strong resistance zone between 370 and 386,” Gunn said. “A failure at this resistance zone, confirmed with a break below 352, would be bearish and target the June 2012 low of 261 in the first instance.”
The Stoxx 600 Automobiles & Parts (SXAP) lost 0.4 percent to 365.1 in London yesterday, falling from its highest level since July 2011. The gauge rallied 36 percent in 2012 as the European Central Bank unveiled a plan to buy the bonds of the euro area’s most-indebted member states.
Still, a break above the 370-386 range would be a bullish sign for European auto-related shares. The industry gauge might then surge as high as 433, the record intraday level reached on Nov. 1 2007, and a 19 percent rally from yesterday’s close, according to Gunn.
In technical analysis, investors and analysts study charts of price, volume and other trading data to predict changes in a security, commodity, currency or index.
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