Spanish Stocks Ready for Another Running of the Bulls?
This week’s downdraft in stocks, particularly in the U.S., has seemed to cast a pall over global equities in general. While we certainly have our concerns (especially in the longer-term), it would be a mistake, at this juncture, to get too negative on stocks across the board considering the variability in conditions among global markets. In other words, let’s not throw the baby out with the bath water. Obviously things can change quickly, but some markets still look very attractive at the moment, depending on the time frame. One chart that looks as if it holds some promise in the short to intermediate-term is Spain.
While the PIIGS are not out of the woods, they are enjoying a brief resurgence (save for Greece) along with the rest of Europe. Spain is included and the chart suggests it could have a bit more upside from current levels. Here is why we like the chart.
After rallying nearly straight up for a year (June 2013 to June 2014), Spain’s IBEX 35 Composite digested the gains in a shallow down-sloping channel for 7 months into January of this year. In February (point #1), it was finally able to break out of the down channel and rally to the previous highs (point #2) from June and September of last year. It then consolidated the gains nicely for a few weeks before breaking out to new highs (point #3) last Friday. During these past two days, the IBEX has come down to retest that breakout point (#4). As long as it is able to hold above the breakout level, it appears to have about 9% of immediate upside potential.
Here is why. A nearly perfect confluence of 3 studies line up near the 12,200 level. That would constitute about a 9% gain above the breakout area around 11,200.
Those 3 studies are the following:
- 61.8% Fibonacci Retracement of the 2007-2012 decline ~ 12,200
- 161.8% Fibonacci Extension of the June-January decline ~ 12,200
- January 2010 highs ~ 12,200
Rarely do 3 major levels line up as perfectly as these 3 do. And certainly, markets don’t follow one’s game plan perfectly, no matter how nicely the chart lines up. That is, there is no guarantee that the level will be hit. However, we like the attractive setup in the IBEX 35 at the moment. Should it be successful in holding above the breakout level, the 12,200 level should be an attainable target.
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“Los municipas te echan del recorrido” photo by Inthesitymad.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
