DE30 tests neckline of head and shoulders pattern

• European indices trade slightly lower

• DE30 tests neckline of head and shoulders pattern

• Deutsche Telefonic slumps after Berenberg "sell" recommendation

European stock markets launched today's cash session slightly higher but have already erased those gains. Majority of Western European blue chips indices are trading slightly lower. Dutch AEX (NED25) can be seen as an outperformer with a 0.3% gain at press time. Polish WIG20 (W20) lags the most, dropping 0.7%.

German industrial production report for April was released this morning at 7:00 am BST. Data turned out to be weaker than expected but, unlike factory orders data yesterday, it still showed a monthly increase. Production was 0.7% MoM higher while the market expected an increase of 1.0%. However, on a year-over-year basis production was 2.2% lower (work-day adjusted).

Source: xStation5

DE30 made another attempt of breaking above the 14,600 pts resistance zone and once again bulls failed to break above. As a result, a right shoulder of a potential head and shoulders pattern was painted in the area. Index launched a pullback later on and is now testing the short-term upward trendline near 14,470 pts support zone. Note that this zone marks a neckline of the aforementioned SHS pattern therefore a break below could be a warning signal. Should the downside breakout be executed in a textbook manner, DE30 may drop around 250 points.

Company News

Rheinmetall (RHM.DE) agreed to set up a joint venture with KMW, German arms industry company, in Lithuania. JV will service combat vehicles for Lithuanian military as well as militaries of other NATO countries stationed in the Baltic States.

Skoda Auto, subsidiary of Volkswagen (VOW1.DE), said that it plans to resume vehicle deliveries to Ukraine this month.

Authorities of German Baden-Wuerttemberg state said that they will block any attempts by Chinese investors at takeover of the Mercedes-Benz Group (MBG.DE). Winfried Kretschmann, state leader, referred to concerns that Chinese shareholders at Mercedes-Benz may increase their stakes to form a blocking minority.

Analysts' actions

• Telefonica Deutschland (O2D.DE) rated "sell" at Berenberg. Price target set at €2.10

Shares of Telefonica Deutschland (O2D.DE) are taking a hit today, following a "sell" recommendation from Berenberg. Shares trade over 5% lower today and are testing support zone marked with 23.6% retracement of recent upward move. In case of a break below, attention will shift to support at 38.2% retracement which is also a neckline of the double top pattern. Textbook range of a downside breakout from this pattern points to a possible drop to as low as 78.6% retracement in the €2.38 area. Source: xStation5