ITA40: Technical picture
Daily chart
Italian stocks are among the worst performers in European indices this year, with the bearish trend beginning with the coming to power of the populist coalition between the Northern League (Matteo Salvini) and theM5S (Luigi di Maio).
The index reached a peak of 24,556 on May 7. The index is currently at 20,441. This is a loss of 16.7% over a 4 month period.
The chart, however, suggests a potential upturn in the downward trend. The divergence between DeMarker's downward trend and DeMarker's upward trend is a bullish signal that shows increased pressure from buyers. The price forms a falling wedge formation, which is a reversing formation. Confirmation of the formation is further "narrowing" in the price range.
We expect attractive levels for purchasing the index (or Italian shares) around 19,800-19,900. This zone represents the 50% Fibonacci level and the edge of the "wedge" formation.
Long-term technical picture
Weekly chart
On the weekly chart, a short-term upward correction signal will be the DeMarker crossing above 0.3. We expect a long-term reversal of the trend when the price exceeds 22,300. At these levels, the price will go over 21-week MA and will trade over Fibonacci support at 23.6%. In this scenario, we will monitor the price action for the formation of the handle in a cup with handle formation. This is a strong bullish signal on the weekly chart.
In the coming months, however, we expect the bearish pressure to remain.
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