Spain's IBEX testing 2014 high

Spain’s IBEX has been one of the top performing indices across Europe in recent weeks and today it is bucking the trend of a weaker wider stock market with a gain of almost 1%. However the index has now reached a key resistance area and so could come under some short-term pressure as the buyers take profit ahead of the ECB rate decision and Mario Draghi’s press conference.

The IBEX is currently testing the key 10550/60 area – this was the high it had achieved at the start of the year when profit taking drove index sharply lower. I said “profit taking” rather than “selling” as this level marked an exhaustion point: the 161.8% Fibonacci extension level of the previous downswing.

This 10550/60 area also corresponds with another Fibonacci extension too: the 127.2% of the down move from the March peak. Thus there is scope for some more profit-taking here, although this time it could be short-lived.

If and when the index break above 10550/60 then we could see the emergence of fresh buying which could see the index go much higher from here. In the short, though, 10770 could be an ideal target which corresponds with the 161.8% Fibonacci extension level of the aforementioned swing. Near-term support is seen around 10500 followed by 10360 – levels that were formerly resistance.

But despite the recent rally, the Ibex still remains below the 50% retracement level (10965) of the down move from the 2007 peak. Thus it has a lot of catching up to do with the other global indices. Although economic recovery in the eurozone has been painfully slow, things have started to improve in Spain. On Wednesday, for example, we saw a further 16.6 thousand fall in the number of unemployed workers in March. This was significantly more than expected. What’s more, the services PMI today printed a healthy reading of 54.0 for March which was an improvement from the month before (53.7). Although the ECB is not expected to cut interest rates at their policy meeting today, the recent falls in eurozone inflation suggests they may well do in the near future.