A gauge of the European automotive shares may go down by 29% or even more if it does not break above the five-year trend line, as predicted by HSBC Holdings’ Technical Analyst Murray Gun. Murray is the current head of Technical Analysis department of HSBC Holdings. Incidentally, automotive industry is the best performing industry group, when it comes to the last year figures of the Stoxx Europe 600 Index, the benchmark gauge of the European shares.
Currently, the price chart for the Stoxx 600 Automobiles & Parts Index has created a pattern which is known as rising wedge. The formation of this pattern is clearly visible from the beginning of this year. This type of patterns is formed because successive high peaks and high lows converge. According to Murray, this type of pattern denotes that the gauge of the carmakers will not be able to break above a trend line. Thereby the intraday peak of the gauge in 2007 will connect to the highest levels of last year.
Murray further commented that the resistance zone between 370 and 386 is pretty strong. Statistically, Murray stated that if a failure occurs at this strong resistance zone and the gauge actually confirms a break under 352, the gauge will trend being bearish. It may well then target the June 2012 low that of 261, right in the very first instance.
The Automobiles & Parts gauge of the Stoxx 600 Index decreased by 0.4% and the same is at 365.1 currently. Incidentally, the gauge reached its highest level in July, 2011. Even in 2012, the gauge surged ahead by 36% after the new plan unveiled by the European Central Bank. The plan was of buying bonds of the most indebted member states of the Euro region.
If the auto related shares have to show bullish signals, it needs to break above the 370-286 zone. If this happens, the industry gauge can actually increase to 433 which was earlier experienced by the gauge on 1st November, 2007. This will mark a 19% increase for the gauge from yesterday’s closing value.
While doing a technical analysis, the analysts and investors study different charts of volume, price and other relevant data. By doing so, they try to predict upcoming changes in index, commodity, security or currency. The same process was followed by Murray Gun and his team as well.