To ‘hack’ the Christmas ‘rally’, Europe must fall by 1.5%

The bags of Europe have advanced the pruning season, and that traditionally the time in which they are usually scaled the trees is late winter. However, the market has shown signs in recent weeks of wanting to remove useless branches and dry leaves before the arrival of Santa Claus.

It has done so with the successive days of assignments in recent weeks. The most recent, yesterday, which led selectives such as EuroStoxx to register decreases of 1.26% in what was its fifth consecutive session down. The German Dax, meanwhile, fell 1.11%, while the Ibex 35 saved the day after losing a slight 0.07%.

All this “as the coronavirus begins to be a major concern among investors since infections in Europe continue to increase,” explains Sergio Ávila Luengo, market analyst at IG, who highlights that “Germany is considering the possibility of implementing Tighter Covid restrictions and a partial blockade like the Netherlands. ”

A movement that has put the German Dax 30 on alert, the selective one that Ecotrader has identified as the one that can alert to a moment of weakness in the rest of continental indicators. “From Ecotrader I continue to monitor what happens in the main reference of the German stock market, which has become our canary in the mine”, warns Joan Cabrero, technical analyst and advisor of the premium portal of investment strategies of the Economist.

“As long as the selective Teuton does not lose the supports he finds at 15,950 ysover all 15,690 points, from where it opened two gaps to the upside and correspond to the adjustment of 23.6% and 38.2% of Fibonacci of the last bullish section, there will not be a clear sign of weakness that invites to reduce the exposure to the stock market “, explains the expert.

In other words, the idea of ​​attending a year-end rally will remain intact as long as these supports remain standing, but if they are lost, we would be talking about a sign of weakness that would alert that the movement of the last weeks is something more than a simple consolidation, and even these supports there is a margin of fall of 1.5% from Tuesday’s closing levels.

The particular case of the Ibex

In the case of the Ibex 35, the level to watch is in the bullish guideline that arises from joining the lows of the last downward corrections, that is, at 8,700 points. “Until that level is lost, it is hoped that we will not have to see a relapse in search of support for supports such as 8,550 and in the worst case the 8,250 points “, clarifies Joan Cabrero, who once again insists, yes, on the influence of the selective German on his behavior.

Beyond the evolution of the German stock market, the glances in the stock market remains also in the withdrawal of monetary stimuli that is taking place in one of the main economic powers on the planet, the United States.

“The new highs have signs that they could be vulnerable”

That – in addition to the evolution of inflation – is one of the great catalysts that is moving the main stock markets of the planet and that today favors, once again, a corrective behavior of western parks. Especially after witnessing a rebound in the yield of the US 10-year bond seen on Wall Street.

“The new ones highs have overtones that they could be vulnerable and that is why operationally the recommendation on Wall Street is still more a hold and enjoy the purchases made weeks ago than a buy, “warns the technical analyst, who places special emphasis on the alarm signals that are have seen in the United States in recent sessions on the stock market, as the Dow Jones has been far from achieving new highs for the year, or “the potentially bearish divergence” that are detected in indicators such as the Russell 2000 that has not been able to set new highs on the last climb.

Bond sales after re-election of Powell

Fixed income experienced a new day of selling on Tuesday following the renewal of Jerome Powell on Monday at the head of the Federal Reserve. The yield of the US ten-year bond it stood at 1.65% in the middle of the session, returning to a level not seen in a month. It seems that it is looking to get closer to the maximum it recorded in October at 1.70%.

Sales were also seen in the Spanish bond, whose profitability rose to 0.512% and returned to the level it had in early November, after falling to 0.38% on November 9. Similarly, the German bond succumbed to sales and its profitability amounted to -0.22%. In October, it marked an annual maximum at -0.08%.