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 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.