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IBEX 35, CAC 40 Forecast: Possible Signs of Exhaustion as Year End Approaches

IBEX 35, CAC 40 Forecast: Possible Signs of Exhaustion as Year End Approaches

Daniela Sabin Hathorn, Analyst

Key Talking Points:

  • The IBEX 35 continues to battle resistance in its attempt to close the coronavirus gap and push above a key Fibonacci level
  • The CAC 40 remains resilient but uncertainties are likely to restrict further bullish momentum towards the end of the year
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European equities have started the last day of November a touch softer in what could be considered the best month in history for most European indices. Positive vaccine news pushed global equities higher at the beginning of the month, but undervalued European indices like the IBEX and the CAC have really been the ones that have stood out.

The Spanish stock index surged more than 25% in the month of November after having been the biggest underperformed in Europe from the March meltdowns as coronavirus broke out. The country’s heavy reliance on tourism as part of its GDP meant that a big part of IBEX stocks were capped as the virus jeopardised summer vacation plans, which is why positive vaccine news had such a big impact on the index. Moving forward, if positive rhetoric around a vaccine remains and coronavirus uncertainty is cleared, the IBEX will likely have good positive momentum to head higher and close the gap with its European peers.

IBEX 35 best performers in November

IBEX 35, CAC 40 Forecast: Possible Signs of Exhaustion as Year End Approaches

Source: Refinitiv

IBEX 35 Daily Chart

IBEX 35, CAC 40 Forecast: Possible Signs of Exhaustion as Year End Approaches

Looking at a daily chart, we can see that the IBEX has still been unable to close the coronavirus gap back in March, a sign that bearish pressure is still prominent. Despite overcoming the 50% Fibonacci level being a big achievement, buyers are likely to not be out of the woods until a push above the 61.8% Fibonacci level is achieved, which would bring the Spanish index more in line with its peers with regards to the stage of recovery from the March lows. This means that the area between 8,450 and 8,500 is the short-term goal, whereas the previously important resistance line at 8,000 is likely to have turned into short-term support.

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CAC 40 REMAINS RESILIENT

Shifting now to the French stock index, the CAC 40 has also seen its best month in history after surging almost 21% in November. Despite being in a better position at the start of the month than the Spanish index, renewed uncertainty towards the end of the summer caused the French index to retreat back towards the 38.2% Fibonacci level despite having been able to close the coronavirus gap throughout the summer.

And despite a nationwide lockdown being lifted on December 15th due to the reduction of new daily coronavirus cases, bars and restaurants in France will likely remain closed throughout the Christmas period, which would be another hard blow to the economy given that all non-essential businesses have been closed since the beginning of November.

IBEX 35, CAC 40 Forecast: Possible Signs of Exhaustion as Year End Approaches

Source: worldometers.info

CAC 40 Daily Chart

IBEX 35, CAC 40 Forecast: Possible Signs of Exhaustion as Year End Approaches

The index is still well-positioned to continue pushing higher towards the end of the year, but given that uncertainties still remain, it is hard to imagine big positions coming into the market towards the holiday period. The key area of support to focus on is the 76.4% Fibonacci at 5,500, given that a sustained break below this level would leave the index vulnerable to further declines towards the 5,000 mark. On the upside, 5,700 is still an important resistance.

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--- Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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