Travelling Technicals with Global Indices: IBEX 35

Apart from being a sunny holiday destination for most of Europe, Spain's economic activity and debt burden has taken an active interest from those predicting a catastrophic collapse of the EU should countries such as these not get a hold of their debt creating ways. At the time when Ireland, Greece and Portugal all flagged waning economies due to burdensome debt, Spain added to those woes saying it found itself in the same boat. 

In a touch and go situation, Spain was able to guide its way safely to certainty once more without collapsing its financial system which would've been disastrous for the entire world however the woods aren't clear yet and with the risk of Europe slipping into a deeper deflationary environment, the almost 100% Government Debt to GDP ratio doesn't settle down well with investors. 

Being regarded amongst the top active economy's in the world, the spotlight is often shone brightly on Spain as a measure of how serious things may be in Europe which explains the extended boost in confidence when the country was able to prevent a banking crises from occurring. 

Besides this, the country is known to be a mass producer of electricity generated from renewable energy placing them in pole position when it comes to the market for selling this technology onto nations increasingly seeking ways to eliminate carbon emission which has been steadily rising. They also boast engineering feats in the production of public transportation not only for itself but other countries across the world. It's also established itself as a huge player in the tourism sector which contributes a significant amount of value to the country's GDP. 

Let's get down to the chart: 

Monthly

Firstly what distinguishes this chart from those of its peers is the fact that the IT bubble of 2000 didn't mark a secular top as it has done for other markets in Europe. The all time highs was marked at the climax of the Financial Crisis. This is important because it suggests that certain sectors within the Spanish economy thrived during the period leading up to the all time highs being registered that were uncoupled from the mainstream activities of the world economy hinting at opportunities in sectors that have yet to set the trend in other markets with my thinking leaning towards electricity generation from renewable energy.  

Secondly we see the price action over the last seven years has been directionless reflecting a closer correlation to matters that affect both the world and the European economy. We see that the debt crisis weighed in heavily on the index and briefly traded underneath the lows made during the height of the Financial Crisis however buyer were able to find solid ground and put together an impressive rally back to the top. 

I do find the current pullback to be in line with world equities but at the same time confirming that the once opportunistic environment that presented itself to entrepreneurs might have drifted away from things as the focus gets drawn towards priorities. The 50 SMA probably gives the biggest clue to what we can expect in months to come...boring going sideways.  

Weekly

I've drawn two Weekly charts as there's two distinct technical patterns that stick out for me that I feel need a great deal of attention separately. The first weekly chart shows the mammoth rally that ensued from 2012 and the subsequent topping forming that materialised. The Head and Shoulder pattern in this chart is quite clear making it prone to having been watched over closely. 

The support level of 9500 was the key price that needed to be taken out before we could be certain of the bearish sentiment flowing into this index. That indeed happened and if we are to make a good observation we'll see that the move downwards unfolded very quickly which matches up to the analysis that the Head and Shoulder pattern was clear and followed closely. 

The series of lower lows and lower highs gives all the hallmarks of a downtrend and with the 50 SMA gradient trend looking familiar to a downward line, the bias is sitting in favour of the bears here. 

Another interesting point sits at the RSI where we see the indicator has tried but failed a number of times to breakthrough the 50 level. Generally speaking if the indicator is above the 50 level it would suggest a bullish tone but in this case its struggled to go above suggesting that the momentum is to the downtrend here. I've highlighted it a number of times and I'll do so again, take note of the neatness with which the indicator rejects the 50 level. 

The second weekly chart adds some predictive thought to the where the price could find itself in the coming months. We see a Bear Flag having formed that is yet to break to the downside. If it were to do that it would confirm the next leg down that could end up at 6500. 

Likelihood of this happening is increased dramatically if we take into account the analysis of the previous chart and incorporate it into this one. The throwback that's occurred has been experienced throughout global equity indices so it's not isolated, however over the past week we've begun to see a much more negative tone floating in with a risk off attitude. 

I would wait for a breakdown to occur and then confirmation which would occur on a weekly basis. The current global market environment has proven difficult to trade in so adding confirmation as a rule would definitely aid this setup tremendously. The problematic situation we find ourselves in is one where volatility is high yet direction is uncertain. 

However its my belief that this chart could be exhibiting a tinge of what the outlook for global markets could be headed into with a slow buildup into a news event that would bring down the market sufficiently to mark another step in the downtrend.