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Technical Update - European Defence stocks could be resuming uptrends. Kongsberg leading the pack
Kim Cramer Larsson
Technical Analyst, Saxo Bank Group
- Corrections in European defense stocks seem to be over, with Kongsberg Gruppen pushing to new all-time highs after earnings
- SAAB is in a bullish trend and could test previous peaks and all-time highs shortly
- Hensoldt, Rheinmetall, and Leonardo are trying to establish new bullish trends, but strong overhead resistance could demolish that scenario
Short-term, there is upside potential to NOK 1,032, and the trend could continue.
However, the strength indicator RSI is showing divergence, indicating uptrend exhaustion, but if RSI closes above its falling trendline on the daily chart, that divergence is likely to be cancelled, supporting higher price levels for Kongsberg.
For this bullish scenario to be demolished, Kongsberg needs to close the gap created this morning, i.e., a close below 901.50.
A close below 870 will reverse the bullish trend, where a close below the rising trendline will be the first indication of that bearish scenario playing out
SAAB AB (SAABb:xome) is trading in a bullish trend, and despite showing RSI divergence, it is likely to push higher.
Currently, SAAB is testing minor resistance at 264.70, and if breaking that level, the all-time high at SEK 272.70 is very likely to be tested and taken out.
Upside potential short- to medium-term to 300–310.
An RSI close above its upper falling trendline will further support the bullish outlook for SAAB. A daily close below 235 will reverse the bullish trend.
Hensoldt AG (HAG:xetr) seems to be building an uptrend (higher highs and higher lows) moving in a slightly rising channel. A daily close above EUR36.94 confirms the bullish trend, and if RSI closes back above the 60 threshold, the bullish trend will be further confirmed.
If that scenario plays out, Hensoldt will have the potential to return to previous all-time highs around €45.
Strong resistance around the 40 level.
However, if Hensoldt slides back, closing below 34 will demolish the bullish scenario.
An RSI close back below 40 will confirm that. An early warning of the bearish scenario playing out would be if RSI closes below its lower rising trendline
If that scenario plays out, Hensoldt will have the potential to return to previous all-time highs around €45.
Strong resistance around the 40 level.
However, if Hensoldt slides back, closing below 34 will demolish the bullish scenario.
An RSI close back below 40 will confirm that. An early warning of the bearish scenario playing out would be if RSI closes below its lower rising trendline
Rheinmetall AG (RHMG:xetr) has been trading in a falling channel-like pattern since its bearish engulfing top and reversal pattern back in April.
But with RSI showing divergence, the bearish move could come to an end. RSI divergence is an indication of (down)trend exhaustion in combination with the doji evening bottom and reversal pattern end-June.
However, the share price is showing signs of trying to establish an uptrend with higher highs and higher lows since its 14 June sell-off.
A daily close above 535.40 and an RSI close above 60 will confirm a bullish trend.
A daily close above the upper falling trendline in the falling channel and above the 55 daily moving average could be early signs of Rheinmetall establishing a bullish trend.
If the bullish scenario plays out, Rheinmetall is likely to test all-time highs around 571.80, but could very well move to new higher levels.
Strong resistance at around 535.40 and 549. If Rheinmetall fails to establish an uptrend and instead slides lower, a close below 464.50 will resume the bearish trend with downside potential to 441, maybe 403.
Leonardo (LDO:xmil) Since bouncing from support at around €21, Leonardo has been trying to build an uptrend.
A daily close above 23.07 will confirm a bullish trend, and if RSI closes back above the 60 threshold, it will further confirm it.
If closing above 23.07, there would be upside potential to new all-time highs around 26, possibly higher. But if rejected, Leonardo could still be range-bound between 23 and 21.
A daily close below 21 could see a sell-off down to support at around 19.85, possibly lower. If RSI closes below its rising trendline, it would be a warning of the bearish scenario playing out, and a close back below 40 would confirm it.
A daily close above 23.07 will confirm a bullish trend, and if RSI closes back above the 60 threshold, it will further confirm it.
If closing above 23.07, there would be upside potential to new all-time highs around 26, possibly higher. But if rejected, Leonardo could still be range-bound between 23 and 21.
A daily close below 21 could see a sell-off down to support at around 19.85, possibly lower. If RSI closes below its rising trendline, it would be a warning of the bearish scenario playing out, and a close back below 40 would confirm it.
Disclaimer:
Author is holding positions in Kongsberg and SAAB
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