Bearish Technical Signals Are Building for Turkish Stocks

(Bloomberg) -- The rapid selloff in Turkish assets since the start of the month has erased some $20 billion from the market value of the country’s equities. And it may not be over.

The depreciation in the lira in recent weeks, combined with the flare-up in geopolitical risks as well as worries over a number of companies’ restructuring plans, have weighed on Turkey’s benchmark Borsa Istanbul 100 Index. The gauge has dropped 3.9 percent so far this week, set to post its worst weekly performance since November 2016.

Here are charts showing Turkish stocks may face further decline:

Building Momentum

The BIST 100’s Moving Average Convergence-Divergence pattern (MACD) -- used to signal trend reversals -- suggests that Turkish stocks may have switched to a declining trend. Both the daily and the weekly MACD line crossed below the signal line, a sign of short-term pressure.

Channel Line

The benchmark, which has traded within a rising trend channel since 2016, has broken below it this week, sending a bearish signal. The chart shows the index has been trading below the lower band of the channel since Monday.

Directional Movement Index

A gauge that compares successive days’ highs and lows to measure momentum also shows that the market is quickly losing steam. The so-called directional movement indicator, or DMI, sent a bearish signal in early February and widely remained there since then. Now the average directional index line, which measures the strength of the trend, has been on the rise since end of March.

Bollinger Bands

The gap between the upper and lower Bollinger bands of Turkey’s main index has widened to the most since late February, and the stocks’ gauge is trading near the lower band. Meanwhile the Percent B signal in the third panel of the chart shows where the prices are relative to their historical moves, adjusted for volatility. It is currently near the lowest level since September.

Moving Averages

The index has crossed below its 50-, 100-, and 200-day moving averages within three weeks, signaling that the negative trend may be taking hold. For technical analysts, a few trading sessions below a long-term moving average is seen as an important indicator for the future trajectory of shares.

Relative strength

Some indicators on the other hand are signaling that the selloff may have been too quick. BIST 100 Index’s 14-day relative strength index fallen to its lowest level since August 2015 on Thursday, before recovering. Technical analysts see a drop in the RSI below 30 points as a signal of ‘oversold’ conditions.

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