Editor’s note: This article was first published in June 2012. The market commentary is from 8–9 June 2012: the Ibex close of 6,552 points, the resistance levels, several share prices, the upcoming Greek elections and the expected bank rescue. Several of the companies named have since been renamed, merged or delisted.
Today, Friday, we can take a quick look at how the stock market has done. The Ibex has gained 8% over the week, closing above 6,500 points, at 6,552 to be precise. You might think the Ibex rebound has already begun, but the truth is we could be looking at a false start. Nobody can know.
According to technical analysis, the first resistance the Ibex has to face is at 6,680 points. Once that’s broken, the next level that could confirm the rebound itself is 7,200. There’s no shortage of experts predicting that the Ibex’s trend is still bearish, and that just as prices have risen this week, they could take us down to around 5,500 points over the summer. There are some positive signs, though: short positions are starting to be withdrawn, which could indicate that speculators have little hope of making money from a falling market. Of course, that’s not conclusive, since they may have pulled out in order to position themselves higher up for a possible new fall.
Another positive sign was seen on the mercado continuo (Spain’s continuous electronic market), where companies that already seemed “bankrupt”, with share prices close to zero, have risen by more than 150% in just a few sessions, although they’re still stocks in a downtrend. These gains came mainly in construction and renewable energy companies: Solaria, Montebalito, Realia, and so on. That doesn’t tell us much either, except that it would point to the strategy the big investors are probably following.
See also: What are a shareholder’s rights?
There are good reasons to think that, in the event of a rebound, the new investment strategy would be to pour money into companies trading at rock-bottom levels, whose shares are very cheap, such as Prisa (€0.41), Vértice 360 (€0.117), Grupo Ezentis (€0.15), Natraceutical (€0.14) or Puleva Biotech-Biosearch (€0.25).
It wouldn’t be a bad idea to hold shares in these companies in case one of them becomes the next Solaria and attracts a big investment, but we warn of possible speculator strategies around a false start rather than a real rebound. At the prices these shares trade at, and with such low volume, a large injection of capital on the back of a rumour that the company is improving would send the price soaring with the purchase of just a few thousand shares. Retail investors would then feel tempted to join in a possible 60% or 150% rise, and finally the initial capital could leave through selling. So you need to keep a very close eye on this kind of “speculative investment” and have a stop loss in place.
Coming back to our Ibex 35, the truth is that right now technical analysis counts for very little; what matters much more are the European economic and political measures and agreements with Spain. A few kind words from the ECB could put an end to all the fears in the markets.
Let’s not forget that the Greek elections are next Sunday, and if the far left wins, Europe would have a problem, although the market has supposedly already priced in even Greece leaving the euro, at a cost of more than 250 billion euros.
Another positive point is that the Spanish banks are going to be cleaned up one way or another and, ironically, the Ibex rebound would gain meaning and strength if the banks are finally rescued by Europe.
So it’s hard to advise whether to start buying into the stock market, with the risk that decision carries, or to wait until things are clearer, with the risk of missing out on a possible initial rally.
On Saturday we’ll get news confirming or denying European agreements with Spain on the banks. On Monday we’ll see whether the Ibex stays in the green, which would be a very good sign and would confirm that the rebound is continuing, or whether it ends up in the red instead, which could mean a return to the downtrend and a move back towards 6,000 points. Anything can happen.
Update, 9 June 2012
The European Union will finally grant “financial assistance” to the banks, news that, according to Juan Antonio Maroto, Professor of Economics at the Complutense University of Madrid, will ease the risk premium this week. Bearing in mind that the stock market has been hit hard by bank shares, since this is a financial crisis, this help for the banks could give us a good week of gains on the stock market.
We shouldn’t forget, though, that the Greek elections are on Sunday, and an unfavourable result could once again raise doubts within Europe.
