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Technical Update - European defense: Rheinmetall, Hensoldt and BAE higher. Dassault depressed
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: Rheinmetall resuming uptrend after earnings release. Indicators pointing to even higher levels
BAE in strong uptrend expect only minor corrections
Hensoldt in correction mode could soon break higher to test previous all-time highs
Dassault is lagging other defense stocks testing key support
Rheinmetall seems to be resuming uptrend after earnings release. A daily close above 441.10 will confirm the uptrend has resumed.
If that scenario plays out Rheinmetall has performed a new all-time high i.e., there are no natural resistance levels.
We can then use Fibonacci projections of the last correction to get an idea how higher Rheinmetall can move short-term. A 1.618 projection at 465 could be seen. However, as illustrated by the two vertical arrows Rheinmetall could move same distance as the top to bottom of the correction i.e., to 480.
However, as a trend is a trader’s friend (an uptrend is defined as higher highs and higher lows) an uptrend should be supported by a rise in traded volume This is the case for Rheinmetall.
It is clearest on the weekly chart, traded volume has risen since New Year supporting the uptrend
A strength Indicator like Relative Strength Indicator (RSI) should make new higher values to support an uptrend in the share price.
This is also the case here on the weekly chart. And if Rheinmetall is closing this week above 441.10 it is a strong indication of an uptrend that can take the share price higher.
Hensoldt seems to be forming a symmetrical triangle on the daily chart. Break out could be imminent. If breaking out to the upside i.e., breaking above the upper falling trendline Hensoldt is likely to test its all-time highs at around 37.54 but could move higher from there. A move to 1.618 projection of the high to low of the triangle at 39.36 could be seen.
A close above 35.40 after a potential bullish break of the falling trendline will confirm the uptrend has resumed.
However, if Hensoldt is trading at new all-time highs there are no strong resistance levels ahead suggesting even higher levels could be seen.
If closing below the lower rising trendline in the triangle Hensoldt is likely dropping lower to support at around 30.85 possibly lower.
If RSI is above its falling trendline AND above the 60 threshold there is strong indication of a bullish break out from the triangle BAE Systems is trading in a steep rising channel on the daily chart making new all-time highs.
there is however, divergence on the strength Indicator RSI, the RSI values are declining while the share price is still rising. That is a sign of imbalance in the market and a stretched uptrend that could be close to exhaustion.
However, so far there has been no top and reversal forming and if RSI is closing above its falling (blue) trendline it is an indication of likely higher levels
First indication of a trend reversal/correction would be if BAE is closing below its lower rising trendline.
Medium-term the uptrend is intact. The declining traded volume on the weekly chart is a bit of a warning sign; fewer and fewer buyers are pushing the price higherThere is divergence on the RSI but if RSI is closing above the horizontal line that will be cancelled and BAE could be set for even higher levels
Dassault Systems seems to be forming a Descending triangle like pattern; the upper trendline is declining and the lower is horizontal. A breakout is needed for trend direction.
If breaking out to the down side i.e., closing below 41.45 Dassault could sell-off down to around 37.30 as illustrated by the vertical arrows. However, there is some support at around 39.05
Link to a description of Indicators used in the Technical Analysis:
Technical analysis studies and indicators
Technical analysis studies and indicators
Note: Author is holding positions in Rheinmetall and Hensoldt
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