The IBEX in Spain is a market that I do not always cover, but in the current environment makes quite a bit of sense to do so. One of the main reasons is that it shows a snapshot of “peripheral Europe, meaning that it is much “riskier” than Germany or France. In that sense, you can think of it as the continent’s version of being farther out on the risk curve, and it is worth noting that unlike many of the bigger indices on the continent, the IBEX has been relatively flat while they have been going higher. At this point in time, one has to ask, “What does this mean?”
When I look at this market, this tells me that some of the markets farther out on the risk curve are lagging. Typically, when there is a huge “risk on appetite” around the world, you will see indices such as the IBEX in Spain and the MIB in Italy outperform. None of these peripheral markets are doing so right now, so it tells me that although people are trying to get away from the negative yields in the bond market, they are not willing to step out into these smaller markets, sticking only to places like Germany or New York.
When I look at the IBEX, we are dancing around the 61.8% Fibonacci retracement level from the recent selloff but sitting on top of the 50 day EMA. In other words, if we were to turn around a break down below the 50 day EMA which is currently sitting at the 8850 region, then I think the market probably drops further, to go looking towards the 200 day EMA near the 8500 level. On the other hand, if we do turn around and take out the 9050 level, then I believe that we will see this market try to go back towards the highs, and that would give the “all clear signal” to be investing in Spain. Be very cautious about trading the IBEX because it can move quite rapidly in times of fear or elation. Nonetheless, you can also use it as a bit of an indicator as to whether or not you should be buying stocks overall, because the better it does, the better the bigger markets do. On the other hand, if we break out to the upside, the gains in the IBEX should outperform Germany again.
