SPAIN IBEX-35 INDEX – CATALEXIT or BUST?

by WaveTrack International| October 12, 2017 | No Comments

CATALONIA INDEPENDENCE OR BUST?

Catalexit – Boom or Bust? Photocredit: Courtesy of Wikimedia Commons

History Repeats?

Geopolitical events remain in focus this year following on from 2014’s Scottish referendum, last year’s June Brexit vote in the United Kingdom and Donald Trump’s surge into the White House last November. Now, it’s Catalonia’s turn to hold the headlines with the Catalexit. Interestingly enough, at each stage prior to the voting, the stock market has proved to be a reliable barometer in forecasting the outcome of each event.

Scotish Referendum

For example, just before the Scottish referendum of September ’14, the U.K.’s FTSE-100 index hit an important peak at 6904.86 which from an ELLIOTT WAVE perspective, ended intermediate wave (B), the second sequence of an expanding flat corrective pattern, opening the way for wave (C) declines which after the vote, sank prices down to 6072.68, down -10.8% per cent in just about a month. This was a perfect forecast even though to consensus views, the Scots vote to remain in the Union was thought to be bullish, not bearish.

Brexit

Then there was Brexit in June ’16. The FTSE-100 was already trending higher from the Feb.’16 lows prior to the vote on June 23rd – ELLIOTT WAVE forecasts had already signalled a temporary correction ending and a resumption of the dominant uptrend shortly before the vote. When the shock news came through in the early hours of the next morning, the index had a momentary wobble, trading down to 5788.74 but later surging higher to resume that uptrend. Once again, the index performed exactly to forecasts, even though from a fundamental, economics viewpoint, the market behaved completely contrary to conventional logic.

US Presidential Elections

The outcome of November’s Clinton vs. Trump Presidential election was again at odds with consensus thinking. If you remember, the media led us to believe that a Trump victory, albeit a remote possibility, would be a disaster for the U.S. economy. The fact that opinion turned quickly around after Trump’s inaugural speech was beside the point because the markets surged higher afterwards. But from an ELLIOTT WAVE perspective, the November 8th victory for Trump was ‘telegraphed’ a long time beforehand, labelled as ending a typical 2nd wave correction for the S&P 500 futures at 2028.50.

Catalexit – Independence or Bust?

So what next for Catalonian Independence? Does the Spanish IBEX 35 index indicate that independence will become reality? Or will the province go bust in their bid to break free from Spanish Sovereignty? As we’ve already seen from previous events, the problem is that the actual outcome of the event has little influence over the ultimate direction of the market – a consistency in economic fundamental logic simply doesn’t work.

IBEX-35 Index FORECAST – Indicator for the Catalexit Outcome?

From an ELLIOTT WAVE perspective, the IBEX 35 index has just completed a counter-trend decline that originated from the May high of 11240.00 into last week’s low at 9840.00 – see fig #1 (futures). This sequence has unfolded into a perfect double zig zag pattern where the first zig zag decline ending into the late-July low of 10350.00 is extended by a fib. 61.8% ratio, projecting the terminal low for the secondary sequence to the exact low traded on October 5th at 9840.00. Don’t forget, this low formed just a few days following the October 1st independence referendum. The swift push higher that followed provided what we term as a ‘reversal-signature’ confirming its completion and triggering the beginning of a new sustainable uptrend.

IBEX 35 Mini Futures – 180 mins. – Elliott Wave Chart

If we zoom-out and insert this component sequence into its larger aggregate pattern, we can see that this corrective decline is simply ending a primary degree 4th wave within a developing five wave up-trending pattern – see fig #2 (cash index). A 5th wave advance is really bullish because it not only pulls the index back above the May ’17 high of 11180.30 (11240.00 futures) but using proprietary fib-price-ratios, projects a terminal 5th wave high towards 12618.70+/-, about +23% per cent above current levels.

IBEX 35 Index – Daily – Elliott Wave Chart by WaveTrack International

Conclusion

We’ve demonstrated the ability to forecast the direction of the world’s major indices around major geopolitical events over the last few years, which is sound knowledge for any investor, fund manager or trader. But as we’ve also seen, the fundamental, or economic logic more often fails to explain the outcome of the event on each occasion. So it’s dangerous to think that just because the IBEX-35 index is forecast significantly higher over the next 6-month period, that Catalonia’s Catalexit-bid for independence will fail.

So far, talks between Catalonia’s regional leader Carles Puigdemont and Spanish Prime Minister Mariano Rajoy continue. Assuming the market’s logic that an uptrend in the IBEX-35 index indicates a political victory for Spanish unity then that outcome is indicated by the Elliott Wave analysis. But as time has proven before, economic logic often flies out of the window!

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