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The ESP35 was one of the worst European indices in early-week trade, following the news that over forty countries had closed travel to and from the United Kingdom over the new mutation of the COVID-19 virus.
Spain also closed its borders to the UK, a move which may have severe implications to the Spanish economy, due to the sheer amount of tourists that usually visit Spain from the United Kingdom.
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 any future recovery in the index, especially if the new strain of COVID-19 is found in other parts of Europe and Spain.
A number of the top 10 companies in the ESP35 are also likely to come under further selling pressure if this the new variant of COVID-19 starts to spread across Europe. Inditex is the leading stock in the ESP35, and owns multiple retail brands such as Zara, Zara Home, Massimo Dutti, Bershka, Oysho, Pull and Bear, Stradivarius and Uterqüe, who rely heavily on foot shoppers.
The Spanish banking sector is also at risk of further losses, with heavyweights such as Banco Santander and BBVA who are likely to drag the ESP35 lower on continued bearish COVID-19 news developments.
Looking at the technicals for the ESP35, a large gap has appeared on the charts due to price plunge on the Monday open, and may need to filled before bears start to take the ESP35 lower once again.
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 8,250 level.
Traders should note that the pattern will be activated if bears take price below the 7,630 level. According to the size of the bearish pattern the ESP35 could drop towards the 7,000 level if the neckline support, around the 7,630 level, is broken.
Source by ActivTrader.
Technical analysis shows that the recent price plunge in the ESP35 has helped to reverse a large amount of bearish divergence on the MACD indicator, which has been present since November.
Key short term support for the ESP35 is found at the 7,770 and 7,650 levels, while upcoming resistance is found at the 8,000 and 8,050 levels.
ESP35 Medium-Term Technical Analysis
Technical analysis on the daily time frame shows that an extremely large price gap still need to be closed, following the swift drop in ESP35 on the weekly price open.
Looking at the daily time chart, the gap exists between the 8,000 and 8,040 levels. It still remains to be seen whether the ESP35 will turn lower once the gap is closed, or whether bulls will attempt to take the index higher.
Source by ActivTrader.
The daily time frame also shows that a large head and shoulders pattern has recently been invalidated, following the November rally above the 8,000 level. Bears do need to be careful because the invalidated head and shoulders pattern still holds and upside target of 9,300.
Should we start to see the ESP35 holding above the 8,000 level, traders should be aware that the technicals still show a road towards the 9,300 area. In summary watch for a strong reaction from the 8,000 to 8,040 region over the coming days.
