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    IBEX clears another major hurdle

    Not a lot has changed in the markets since I went on holiday a couple of weeks ago. The dollar is still looking very strong despite the disappointing US jobs data, the euro is falling, commodities are range bound and European stock markets are hitting fresh multi-year or all-time highs. This theme is likely to remain in place for the foreseeable future. The European central bank is unlikely to alter its policy stance while the dollar’s resilience in the face of weaker US fundamentals suggests the greenback has potentially got a lot of wind in its sails. In theory, this should cause the EUR/USD to extend its declines towards, and potentially beyond, parity which in turn should help to boost European exports further.

    Indeed, European stock markets are clearly benefiting from a weaker euro. Every time the sellers have tried to exert some pressure, the result has been the same: disappointment. The accumulation of disappointments has probably discouraged the die-hard bears from entering the markets and possibly encouraged some to even reverse strategy altogether and turn bullish. This is highlighted for example by the progressively shallower pullbacks and longer rallying phases seen across the European stock indices. With this sort of price action and the fundamental backdrop of improving Eurozone economy and ultra-low interest rates, combined with receding fears about Greece, it is becoming increasingly difficult to justify being bearish on the markets.  We of course have been bullish for quite some time and still maintain that view.

    Besides the German DAX index, one of our favourite European stock markets is Spain’s IBEX. This particular index has done remarkably well recently and has already reached our main bullish targets we set out in our previous reports (for details, see “IBEX clears major hurdle” and “IBEX: Spanish bulls raging through bear territory”).  As a remainder, we were previously watching the key 11200 level with keen interest after the last few bullish runs had stalled around this area. But when this level finally broke down, we said that this was a “major bullish development which could lead to some significant gains going forward.” Indeed, this is exactly what has happened with the IBEX now trading some 600 points or 5.4% above 11200.

    One of our main bullish targets was at 11750/60. As can be seen on the chart, this is where two sets of Fibonacci exhaustion levels converged: the 127.2% extension level of the XA swing with the 161.8% of the BC swing. As the Ibex has now cleared this potential exhaustion area, the suggestion is that the bulls will now probably target much higher levels.  Previously we had noted that once it reaches 11750/60 “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.” This move is now in motion. Interestingly, the 261.8% extension level of the most recent swing (from point F to G) also converges at 12160. This therefore makes 12160 a key technical area to watch. But there are still at least a couple of more hurdles ahead of 12160 to note: 11860 and 12000. The former is the 261.8% extension of the DE swing while the latter is a psychological level.  Meanwhile the key support level to watch now is the old resistance around 11760. Below here 11610 is the next key level. Unless the index breaks below the latter, the short term technical bias remains decidedly bullish.

    Figure 1:

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

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