Spanish market in bullish set up

1 mins. to read

Considering the downgrade by the debt rating agency S&P of Spanish debt, yesterdays price action in the equity market is particularly encouraging to the bulls.

Nobody will argue that the Spanish economy currently finds itself in a tricky situation, what with ‘official’ unemployment running at around 25% and bond yields breaching the key 6% level on numerous occassions in recent weeks (although last week it fell back below here). The key  question of course is – is this now in the price? At the current index level, equities yield over 7% – if this payout is maintained then equities are quite simply a steal.

Without debating too much the fundamental issues of the Spanish economoy and in looking purely at the technical position, you can see from the chart above that the MACD in particular is alerting us to a potential reversal in the equity market. The deviation of the index from its 50 day moving average is at such a level too that more often than sharp snap backs occur. Bearing in mind that the stock market is a leading indicator, and also paying heed of the old investment advice to “buy when blood is on the streets”, I think that a long ‘swing’ trade around here (7100) has a good chance of proving profitable over the next few weeks.

I have opened a long position around these levels and, should another lurch lower towards the 6700/6800 occur, then I will add to that position with a medium term timescale in mind (1 – 3 months). My first target is around the 7500/7600 level and I expect that to occur within the next couple weeks.

Remember to control your leverage and allow yourself to ride out a good degree of volatility in the index so as not to be ‘whipsawed’ – when markets are making tops and bottoms they tend to be volatile and that is in fact a large part of the reason that a bottom in particular occurs – many players get cut out and so when it looks likely that a bottom is in fact in place they will then ‘chase’ the market – a pattern and price action that results in sharp V type charts.

Good luck to you all!

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