The ITA40 index has posted a major upside recovery from the lows of last month, following news that former European Central Bank President Mario Draghi is in talks to form a new political party in Italy.
Prior to the announcement the ITA40 index has slipped towards the 2,130 level as political chaos engulfed Italian Parliament, following a major split in the ruling coalition party. The index has subsequently recovered back towards 2,300 level in a stunning turnaround of events.
This week, the Five-Star political party is going to vote as to whether to allow former ECB President Draghi at the helm of the party. The controversial leader and founder, Beppe Grillo, has thrown his full weight behind Draghi.
Many political analysts are surprised, considering that Grillo is fiercely anti-establishment, and coming from the ECB, Draghi is about as establishment as you get in Europe. The Five-Star movements 100,000 paid members will be voting on this very matter before the end of the trading week.
Expect plenty of volatility in the ITA40 index, with either a yes or a no outcome likely to cause a major one-way directional move in the index. Although the index has gained significantly, further upside is certainly possible on a resounding yes vote.
To the downside, I will expect to see almost all the recent gains wiped-out if the party vote no to Mario Draghi. It remains a tight call, however, the majority of political pundits are expecting Draghi to prevail and potentially become the new saviour of Italian politics.
The ActivTrader Market Sentiment tool shows that around 55 percent of traders are currently bullish towards the ITA40. Given the scale of the recent run higher this presents a fairly compelling case while the index can head higher still.
As usual the majority of retail traders have missed out the recent explosive recovery and got caught wrong sided on the initial move down. Checking the ActivTrader trader market sentiment tool really can help traders make better informed decisions.
ITA40 Short-term Technical Analysis
The four-hour time frame shows that the index has ignited a bullish inverted head and shoulders pattern and looks to be on its way towards the 2,470 level.
Source by ActivTrader.
Technical analysis highlights that as long as bulls continue to defend neckline support, around the 2,300 level, then the upside momentum for the index remains on track.
Key support on any moves below the neckline of the head and shoulders pattern is currently found around the 2,250 and 2,170 level.
ITA40 Medium-term Technical Analysis
The daily time frame shows that the ITA40 appears to be gravitating towards major long-term trendline resistance, around the 2,400 level, which is the top of a large rising price channel..
It continues to expect that a major reaction could happen from the top of the channel, if index the ITA40 indeed reaches this area in the coming days, which again I suspect it will.
A bearish rejection from the channel could cause massive losses for the ITA40, while a breakout could see the ITA40 posting huge gains towards the all-time highs.
Source by ActivTrader.