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The ESP35 index has been steadily rising since mid-July as the leading Spanish index follows other European bourses higher due to renewed bullish sentiment towards a summer revival in the eurozone.
Bank of America have recently noted that they are overweight on the ESP35 and German 30, as they believe both indices’ still have significant upside potential left. For the record, BOA is underweighting the FTSE100 now.
In June, the ESP35 was one of the worst performing European indices, following the news that the new mutation of the COVID-19 virus, the DELTA variant, could cause the country significant problem with tourism.
Tourism is vital for the Spanish economy, and particularly in the summer months and even more so with the European economy. Spain is currently in the amber list but there had been concerns it could be moved up to red list today.
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Data showed a high proportion of travelers returning from the country had tested positive for Covid, so it is well worth watching this announcement as it could cause the ESP35 to stage a big move if Spain is put on the red list by the UK government.
The Spanish economy rebounded faster than expected in the second quarter after unexpectedly contracting in the first three months of the year, when rising COVID-19 contagion forced new restrictions on businesses.
Spain’s gross domestic product expanded 2.8% in April-June compared to the quarter before, faster than the 2.2% expected by analysts, official data showed on Friday. The economy had contracted 0.4% in January-March.
According to the latest data from the OECD, tourism account for over ten percent of Spain’s tourism sector, and currently creates over two million jobs. ESP35 traders certainly have a reason to be cautious towards rising Delta cases, especially if the new strain of COVID-19 is found in other parts of Europe.
Looking at market sentiment, some 86 percent of traders are bearish towards the ESP35. Given the relative outperformance in the index over the last eight-week this is a bullish contrarian index. The index still looks like it has scope to head higher, although I suspect COVID-19 will have a large hand in the index’s performance.
ESP35 Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that a bearish head and shoulders pattern has formed, following the recent heavy technical rejection from the 9,000 level.
Traders should note that the pattern will be activated if bears take price below the 8,820 level. According to the size of the bearish pattern the ESP35 could drop towards the 8,600 level if the neckline support, around the 7,630 level, is broken.
If the pattern is invalidated we should expect a rally back towards the current all-time high, around and slightly above the 9,200-resistance level.
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ESP35 Medium-Term Technical Analysis
Technical analysis on the daily time frame shows that an extremely head and shoulders pattern has formed, and it is located between the 8,200 and 9,25 levels.
Looking more closely at the pattern, a move above the head of the pattern could cause a price surge towards the 10,000 level, while a break under the 8,200 would probably cause a further 1,000 price plunges in the ESP35.
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