Travelling Technicals with Global Indices: PSI 20

Today I'll be focusing on a relatively smaller player in the European network of stock exchanges but whose political environment plays an important part of the direction of the Eurozone. Portugal has a population of just over 10 million yet its influences are still felt strongly around the world after its dominating participation of the discovery of new lands which led them to find strategic trade routes to nations such as India, Brazil and South Africa.

A brief history of Portugal

Although sovereignty has been restored to all the countries it colonized including Macau, the country has gone through its own testing times in trying to find social order that started in the year 1910. The gradual build up of socialist thought from the beginning eventually led to installment of Antonio de Oliveira Salazar who sat at the helm as Prime Minister for 36 years until his death followed by the collapse of his regime, Estado Novo in 1974 in a military coup.

The country began to pick up the pieces as best as it could but suffered along the way but saw a ray of light in the late 70's when they started negotiations to join the European Economic Community which became the EU in later years. Since then the country has followed socialist ideals but in recent years has found itself in a difficult position of implementing austerity measures to pay down debt and serving the needs of the people who have become accustomed to this way of living.

It's due to this fact that the Portuguese economy has suffered further setbacks as they fall into the category of member nations within the EU that need to be bailed out on a consistent basis, pushing politicians into a corner by promising one thing to voters and doing another for creditors thus creating a large degree of political uncertainty.

We saw in recent months how parliament was unable to form a government with at least 50% of the vote, causing much distress over whether it would be found in quick enough time to resolve the uncertainty that could hold the country back further and possibly hinder the pathway to bearing the fruit of economic prosperity again.

Let's see how well the performance of the PSI has matched up to these events that's taken place;

Monthly

The index exhibits a much harsher depressive state than most other European indices that attempted to reach Pre-Financial Crisis highs. The all time high of 13 500 was reached during 2007 but failed in its resurgence by only touching 8 000 on its return trip and subsequently falling down past the lows made in 2008. These new lows formed critical support for the index that has been stuck in a directionless basis for the past four years.

In trying to find distinct technical formations that would help indicate to me of possible movements, I battled to find anything out of the ordinary however I did revert back to basics and placed support and resistance lines to find the sideway motive. I would say the crucial line at present lies at 4 500 with a break downward suggesting fresh lows that could be registered in the future.

I've drawn an arrow where I focused my attention on the chart thinking I would find something here by just observing the highs and lows. In order to unlock chart value we have to zoom into the lower timeframe charts and unpack the price action which I'll explore in the next chart.

Weekly

It must be noted that the Portugal Stock Exchange is not very big with few listings (57) making the charts untidy. My belief is the neater the chart that lines up to the pattern or formation the greater the edge produced. 

In saying this it appears that the weekly chart has generated two possible technical patterns that measure up similar targets to the downside. Again, the break has been untidy so we'll need to monitor certain levels for confirmation of a void signal which I'd place at 5 600. The break was securely confirmed with a long red candle penetrating through support however in frustrating fashion the price has moved back above the support line again but having tested the downtrend, failed and subsequently come back down to the support. 

This price action suggests that the movement to the target, if it does materialise, could be messy and would require a considerable amount of patience. The added volatility being experienced in global markets doesn't make things easier for this one so in concluding I would say stay away.