The Spanish Stock Market has had one of the poorest performances amongst the European countries in 2010. So far, the Ibex 35, its most representative Index, has decreased about a 7%, as the German DAX or the French CAC 40 have increased a 5% and a 3% respectively. Its behaviour seems to be more sluggish if we compare with another European indexes, especially Nordic Economies, such as Finland, whose Index HEX has soared around a 13% during the first quarter of this year.
The collapse of some of the most significant “blue chips”, such as “Santander” or “BBVA”, that plumbed 37% and 30% between January the eleventh and February the twenty sixth, has partially explained the weak situation of the Spanish market. Apart from these multinational banks, Telefonica had fallen a 19% in the same period. We have take into account that this three securities account for a 50% of the Ibex 35.
Despite this apparently discouraging situation, a fair analysis should take into consideration the fact that these stocks had a staggering recovery last year. Santander, for instance, soared a 235% in the last three quarters of 2009. Therefore, its correction of 37% should not be dubbed as “worrying” from a long-term perspective.
Once the one-year scenario has been dissected, the main question is what investor can expect for the coming months. If we examine in detail its technical situation, there are relevant elements to look at. The key level of 11.200 points is going to play a crucial role in the short term. So far, it has prevented the Ibex from carrying out an upwards movement, like the European ones we have previously mentioned. If this area was broken up, the Ibex would still keep a potential recovery.
This chart shows a second important factor that can influence the result: the psychological zone of 10.000 points behaved as a bottom two times. The subsequent break-up of the 10.750-point level could have made an impartial spectator think that the Spanish market is trying to develop a double-bottom pattern and that the falling stage could be close to an end.
However, despite this appealing hypothesis for bullish strategies, the resistance of 11.200 points, which was a phenomenal five-month support, remains decisive. If finally it´s broken up, the way to the next resistance (12.250 points) will have been cleared. Otherwise, the Ibex will stay in a range-bound situation between 10.750 and 11.200 points.
The recommendation is to hold. Stop loss in 10.680 points.
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