SPN35_m tests 9500 resistance ahead of Spanish elections

At the time of writing, the SPN35_m index is looking to break beyond the 9500 level once more.

This stock index has traded in what appears to be an ascending triangle pattern since March:

• forming higher lows in recent months
   
• the imminent 9500 round number level has proven to offer stern resistance for the most part, barring a brief foray above that psychologically-important line coming into July.

Using the textbook definition, the three daily closes above 9500 in the final days of June may have initially been interpreted as confirmation of the upside break.

However, given that it was not accompanied by a volume spike (the second crucial component needed to confirm the break), such price action from a few weeks ago proved to be a head fake, at least for the time being.

Still, the SPN35_m index has found strong support at its 100-day simple moving average (SMA), leaving bulls (those hoping that prices will move higher) primed to take advantage of any positive catalyst to punch higher, sustainably.

NOTE: The SPN35_m tracks the IBEX 35 index, which is the official index of the Spanish Continuous Exchange.
This benchmark index for the Spanish stock market is made up of the 35 most liquid stocks traded on the Continuous market.

 

And such a catalyst may arrive this weekend!

Spain, the fourth largest economy in the euro area, is due to hold a snap general election on Sunday, July 23^rd.

The national polls will pit Alberto Nunez Feijoo, the leader of the People’s Party (PP), against incumbent Prime Minister Pedro Sanchez of the Spanish Socialist Workers’ Party (Socialists).

According to recent surveys, Feijoo’s People’s Party are favourites to win this Sunday’s general elections.

Sanchez’s hopes for re-election are being severely curtailed by the economic woes, with food prices rising by over 10%, growth rate that lags its European peers, and thinning disposable income among households that’s 2.4% lower than pre-pandemic times.

Though to be fair, headline CPI (consumer pirce index) – which measures broader inflation -  actually fell in June to 1.9%. That’s below the European Central Bank’s 2% target.

Still, neither the PP nor the Socialists appear to be able to gain an outright majority, and may have to rely on a coalition involving other parties.

 

What do stock bulls want?

Broadly speaking, the market-friendly outcome appears to be a political shift to the right. Or simply put, Feijoo wins.

And here’s a key reason why.

The incumbent Sanchez administration rolled out a windfall tax on banks last year.

This tax is due to expire by 2024, though the current government had thought about making it permanent.

Note that financial stocks are the largest sector represented on the IBEX 35, accounting for 28.5% of the index.

Hence, markets are set to look kindly on this tax being removed by 2024 by a new government.

Such optimism may then send the SPN35_m surging past the 9500 mark.

On the other hand, the SPN35_m may be dragged lower on a win by the incumbents, or a political deadlock that brings about months of wrangling among parties, perhaps even repeat elections, leaving the Spanish economy rudderless at the hands of a lame-duck government in the interim.

 

Now, a special note for Alpari clients:

Due to the Spanish General Election on Sunday 23rd July, we’ll be temporarily changing our margin requirement for the instruments, IBEX35 and SPN35_m from 1:200 to 1:50.

This change will be effective from Friday, 21st July (before market open) to Monday, 24th July. However, we may extend this depending on market conditions.

If you have any open positions on the above-mentioned instruments, please consider your trading strategy and make sure you have enough funds in your account to cover the new margin requirements.

If you have any questions about this or need help with your account, please do not hesitate to contact us.