Inflation in the US has exceeded estimates and soared to 4.2% in April. Is profit taking on Wall Street temporary? How are the indices behaving?
We have seen inflation data that has been surprising. 3.6% was expected and it was 4.2%, which is already very powerful. Core inflation, which is taken into account by the Federal Reserve, has stood at 3%, well above the 2% target. This makes investors very nervous, because we know that when there is a sustained period of inflation above 3% and also increasing, statistically the stock market has behaved badly, it has had negative returns of around 5% or 6% annualized. This is a factor that everyone takes into account. If inflation finally rises, the Federal Reserve will have to change its monetary policy, make it less expansive and start tapering. And that increases financing costs and impacts the business profits of companies.
The S&P 500 has triggered a bearish divergence. Initially it indicated that it seemed that it was giving a bullish cross, breaking the zone of highs. A missing break. It has been confirmed with the confirmation of the bearish divergence. Price increase on the chart, while we have indicators with decreasing highs. This marks us a theoretical objective due to that bearish divergence towards the 4.015 environment, coinciding with the upward guideline that joins the rising lows since last October 30. It would be very bad news if it lost that guideline and the 3,988. From there we have the average close to 3,912. The next support would be at 3,853. At the moment, the market is getting nervous. It will be necessary to see if these supports hold. What we are trying to anticipate now is whether this is going to be simply temporary inflation and, therefore, that it does not force the Fed to take action, or if it is going to be inflation that is maintained over time. That could force the Fed to cut stimulus packages and raise interest rates in the future. We would be waiting to see the following inflation data to see if this holds or not.
On the Nasdaq we have a guideline linking the rising lows since November 2. We would be in exactly that guideline. If it lost the 12,870 area, the next support would be at 12,622 and the situation could be a bit more complicated. If the 12,622 were lost, the inverted hch that would still be activated would be deactivated. And, therefore, we would no longer have bullish scenarios, but we could think of additional corrections. At the moment, nearby support areas. We will have to watch to see if it holds them or the market considers that inflation is going to continue and we have to start selling equities.
European stock markets plummet by around 2%, dragged down by the fall in the US market. Will the downtrend continue in Europe?
We are seeing how this inflation data is dragging all markets, also in Europe. In the Euro Stoxx we have activated a double top that tells us that the theoretical target for breaking lows between highs would be around 3,777. Right now, in the short term, the most likely would be to also think about corrections. We will see if it reaches that area, it will find some support to think about what can be done in the future. Also dragged. You will most likely continue to see drops.
In the case of the Dax we have something similar. A bearish divergence in this case, which would be activated if it lost 14,829, a kind of bearish divergence or double top, as in the case of the Euro Stoxx. If so, the first support zone would be at 14,420. Then we would have the weighted long-term average that passes through 14,220 and then 14,195 would be the next support, which was the previous resistance. For now, it seems that pressure may also increase on European equities.
How far could the Ibex 35 have traveled?
The Ibex 35 has activated a theoretical figure with a target of 9,260 due to a lateral range break, but it is true that in the short term we also see how the indicators turn to the downside. Now what we would have as a surveillance zone would be the guideline that unites the previous rising lows. The average of 50 and the guideline around 8,620. If he lost that area, it would obviously complicate the situation a bit more. Next support at 8,460. The most important, the 8,272. It will be necessary to see if this support will finally hold or not. In the short term, it seems that a certain correction in the Spanish market is most likely to continue.
What values of the Spanish stock market present greater opportunities per technician?
I would look at the strong values of the national market. Wait if there are any fixes and would try to buy on fixes. For example, Fluidra is free uphill. If there were any proportional correction in FIbonacci levels from the entire rally this could be an entry opportunity. Almirall recently generated a double bottom in the 8.81 area. If there is any correction now within the channel it is in, it is at the top. If it goes to the downside or the 13.76 area and leaves us some entry point or upward turn pattern, it can also be interesting. We would have, on the other hand, companies like Arcelormittal and Acerinox. Arcelormittal is very strong. Theoretical medium and long-term objectives activated towards the 30.80 area, the previous highs in that v-lap that it is generating. Corrections that you may have could be used to get on the trend. I would wait to see how far the Spanish market ends and these values fall to try to get on the trend of strong values.