Italian stocks reveal pattern

Note: This section contains information in English only.
Source: Dukascopy Bank SA


The top 40 Italian stock index hit a high level at 35,525.00 on May 16. However, on that day the European Central Bank released the ECB Financial Stability Review. The future outlook for the Euro Zone and Italy caused a gap down of the stock index at the start of May 17 trading. Following this event, the index found support at 34,000.00, before drawing a head and shoulders pattern.

The head and shoulders pattern signalled a decline. The decline was confirmed, as the index passed below the 50-day simple moving average and the 34,000.00 mark. These events coincided with the ECB interest rate cut, which made investment in EUR denominated stocks less attractive than other currency denominated indices and individual stocks.

Most recently, the stocks revealed a channel down pattern by confirming the location of the pattern's lower trend line on June 13.

During the past week's the Italian stocks have been recovering in the borders of the channel down pattern. The index is approaching the combined resistance of the 34,000.00 mark, the 50-day simple moving average and the upper trend line of the channel pattern. At these levels, the longer term future will be decided.

A bounce off from these levels could result in a resumption of the decline in a channel down pattern. The decline would be expected to be slowed down by the lower trend line of the pattern and round price levels like the 32,000.00 and 31,000.00. Both of these levels have shown to be capable of impacting the stocks.

On the other hand, a breaking of the pattern to the upside might encounter resistance in the 35,000.00 mark and the 35,525.00 level, before new highs are reached.

In the meantime, note that the next ECB rate decision is scheduled for July 18. Another rate cut or a monetary outlook with easing could beat the index down.
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