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IBEX clears major hurdle

The European stocks markets have come under a bit of pressure as the new trading week gets underway. Market participants have been encouraged to simply sit on their hands today due to the lack of any major macroeconomic numbers this morning and ahead of another crucial round of talks between German Chancellor Angela Merkel and Greek Prime Minister Alexi Tsipras later on. In addition, traders are exercising a bit of caution ahead of Tuesday’s data dump when we have the latest global manufacturing and services PMIs as well as the UK and US CPI readings, among other things. Despite today’s weaker start, we remain fundamentally bullish on stocks, especially in Europe. Not only did the US Federal Reserve last week rule out the prospects of a rate hike in April, but its so-called “dot plot” of setting out officials’ expectations for interest rates suggested the pace of the hiking cycle would be more gradual than had been priced in. In Europe, the ECB’s bond buying programme has just started while most other central banks are expected to remain extremely accommodative. Therefore, with global interest rates being this low, and the euro – despite its recent recovery – being so weak, European exporters are likely to be among the major beneficiaries of these extraordinary times. This view has already boosted the German DAX index which has rallied to repeated all-time highs recently. But now it could be the IBEX’s turn to put on a similar showing because the Spanish benchmark index has cleared a major resistance level at 11200.

The IBEX has been look particularly strong from a technical point of view as we have highlighted in our previous reports (for example, see “IBEX: Spanish bulls raging through bear territory”). As you may recall, we have been watching the key 11200 level with keen interest after the last few bullish runs had stalled around this area. But in the most recent up move, a bearish trend line had been broken which led us to believe that the IBEX was gearing up for a potential breakout soon. Indeed, this is what has now happened: on Friday, the index surged through this 11200 barrier to close decisively higher. This is a major bullish development which could lead to some significant gains going forward. We are now technically very bullish on the IBEX while it remains and holds above the 11200 level on a daily closing basis.

As we go to press the Spanish index is flat and is therefore outperforming most of Europe with the DAX, for example, being down more than 1 per cent today.  The Ibex is held back by profit-taking ahead of the 161.8% Fibonacci extension level of the most recent mini correction from point D to E on the chart, at 11475. But once this hurdle is cleared, the bulls may then target 11750/60. This is where the 127.2 and 161.8 per cent Fibonacci extension levels of the last two profound downswings converge. From there, it may pullback a little bit on profit-taking before potentially pushing higher again towards the long-term 61.8% Fibonacci retracement of the downswing from the 2007 high, at 12160. But as mentioned, a potentially bearish scenario would be if the index falls back below the 11200 hurdle. And the bulls will be really concerned if the index also goes on to break the next key support at 10930.

Figure 1:

Source: FOREX.com. Please note this product is not available to US clients


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