Technical Analyst, Saxo Bank Group
Summary: Novo may have topped out and could be facing a larger correction. Top and reversal patterns are in place but downtrend/correction not yet confirmed.
Novo Nordisk reported earnings this morning and the reception has been market indecision resulting in quite a lot of volatility.
Short-term: Novo formed a Bearish Engulfing candle 9th January which is an indication of a top and reversal. Market gapped lower the following day. However, the gap has been closed but the Bearish Engulfing top and reversal indication remains. It would need at close above 975 to be cancelled and reversed.
If Novo is hit by selling pressure and closes below 896.50 it is technically in a bearish trend. The lower gap from November will be a strong support area.
Daily RSI is still showing positive sentiment with no divergence indicating a push higher in Novo.
An RSI close above its falling trendline could be first indication of this scenario to play out. If RSI closes below 40 its in negative sentiment.
Medium- and longer-term: Novo has formed a Bearish Engulfing candle a couple weeks ago after hitting the upper band in the rising channel. There has been RSI and Volume divergence during the entire uptrend from Q4 2021 i.e., the Strength Indicator and traded volume have been declining while the share price has been rising. That is a warning sign of a trend weakening.
If weekly RSI closes below its lower rising trend line it is indication of Nove could drop to test the lower rising trendline in the rising channel.
Monthly chart shows almost similar pattern as the weekly chart. Rising channel and declining RSI and Volume meaning divergence. The uptrend in price is weakening. Divergence on RSI cannot go on forever.
For these price exhaustion patterns to be cancelled and reverse a close above 976.30 is needed following new higher RSI value.
If Novo is failing to close above 976.30 and instead slides lower it could test the lower rising trendline. A break of the trendline the key support at around 730.60 could be tested.
Next couple of weeks could be decisive for the medium-to longer-term trend.
RSI divergence explained: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
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