The IBEX 35 is Spain’s benchmark stock market index. It was initiated in 1992 and consists of the 35 most liquid Spanish stocks. With Spain still suffering from the consequences of one of the worst economic crises ever, its general stock market index yet managed to climb from below 6000 in July 2012 to 11884 in April 2015. Unfortunately, the bulls could not hold to the positive momentum, which led the IBEX 35 back down to 8206 in the middle of January 2016. What is causing this recent weakness? And what to expect from now on? Is the index going to plunge below 6000 again or the current decline should be considered a good buying opportunity? By applying the Elliott Wave Principle to the weekly chart of the IBEX 35, we are trying to find the answers to these questions.
The chart above visualizes IBEX 35’s behavior during the last three and a half years – the period we discussed in the first paragraph. As visible, the recovery between July 2012 and April 2015 could easily be counted as a five-wave impulse. Those, familiar with the matter, know that according to the Wave Principle, impulses show the direction of the larger trend. In this case, the five-wave sequence points to the north. But trends are interrupted by three-wave corrections after every impulse. This is what we believe IBEX 35’s current sell-off is – a natural retracement in three waves, labeled (A)-(B)-(C). If this is the correct count, once the correction is over, the larger uptrend should start again. Furthermore, prices have already reached the 61.8% Fibonacci level, where counter-trend patterns often terminate. So, the Elliott Wave principle suggests we could expect a bullish reversal soon, which has the potential to lift the IBEX 35 above the 12 000-point mark in the long run. In our opinion, investors should not neglect Spain’s stock market.
