SMI to Drop, Then Rise to 11-Month High: Technical Analysis

By Adam Ewing

Sept. 29 (Bloomberg) -- The Swiss Market Index’s drop below a support level at 6,250 may signal further declines over the next two weeks before the measure will mark a new 11-month high, according to Zuercher Kantonalbank.

“We expect the SMI to go down further over the next one to two weeks before it finds support at 6,020,” said analyst Philipp Jaeggle in Zurich in a telephone interview yesterday. “In the midterm the trend is still positive.”

After the market settles around 6,020 it is likely to gain momentum and push its way higher, up to the resistance level of 6,400, which it last reached on Nov. 4, he added. The SMI fell below a “weak support” level of 6,250 last week and short-term momentum indicators give a negative signal, but the medium-term trend is intact.

The SMI, a gauge of the country’s biggest and most actively traded companies, has surged 45 percent since reaching this year’s low on March 9, lifted by better-than-expected earnings and signs the worst recession in decades is nearing an end.

“The market has corrected from its March lows, but moves now won’t be as strong,” Jaeggle said. “Still, as long as the positive trend continues, we could go above 6,400 within six to eight weeks.”

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

The SMI gained 11.33, or 0.2 percent, to 6,300.6 as of 10:57 a.m. in Zurich today.

To contact the reporter on this story: Adam Ewing in Stockholm aewing5@bloomberg.net.