The month of January has been very positive for the selective index of national equities, the Ibex 35, which has resumed the bullish channel at least in the short term. Its momentum has developed from the 8500 point levels and everything looks like the bull rally of the Christmas holidays has arrived with some delay, but certainly not without intensity. Where all the values of the Spanish stock market are appreciating significantly, in some cases above 20%.
Nobody thought that equities started this year with this intensity in the climbs. Not surprisingly, most of the small and medium investors were away from the financial markets with the aim of making purchases with a price much lower than they were at the end of last year. This movement, therefore, has surprised everyone and it may already be a bit late to enter the financial markets at this time.
In principle everything seems that it's about a bounce, but of great intensity and that can still have a long upward path. However, if it exceeds its levels of 9800 points, it could imply a change in the trend in the short and medium term. Beyond the logical corrections that you may have along the way. It will be one of the keys that the Ibex 35 will give us to take one or another investment strategy, beyond other technical considerations that this stock index may develop.
Ibex 35: values on the rise
The effect of this movement on national equities has been immediate. With appreciations in the very relevant values. To the extent that listed companies in the electric sector They have been placed in a free rise situation. That is to say, they no longer have resistance ahead and therefore their potential for revaluation is currently very high. As in the specific case of Endesa or Enagás, which are some of the bets for this year by a large part of the financial analysts. Despite the fact that they had already accumulated a lot of earnings from the previous year.
On the other hand, it cannot be forgotten that the Ibex 35 came from a situation of extreme weakness and that it was in a position to position itself below 8500 points. A very radical change in the equities of our country and that has caught a good part of the small and medium investors with the changed foot. Now it remains to be seen how far the selective index of national equities can go. In any case, everything seems to indicate that still there will be an upward journey during the first semester of the year. Where it could be at levels that are between the levels of 9500 and 9800 points.
Relations between USA and China
One of the reasons to explain this unexpected upward movement is the improvement in commercial relations between these two economic powers. To the point that a very productive deal can be reached in the coming months. A factor that has undoubtedly given a strong boost to stock markets around the world. On the other hand, we cannot forget that there are other factors that have led equities to buying positions.
In this sense, it is important to highlight the fact that in recent weeks there has been a kind of fragile truce between the United States and China in the trade war that these colossi of the international economy are engaging in. Since it has been very remarkable that the government of Washington has postponed the tariff hike for 200.000 million dollars. While on the contrary, Beijing agrees to buy a "substantial amount" of North American products. It is, in any case, another psychological war being waged by these two great countries on the planet.
Forecast on the national stock market
In a different vein, the Bankinter's analysis and studies department uses several possibilities through which the selective index of the Spanish stock market can go through during this current year. With these assumptions, “in our baseline scenario, we revised our target price down to 10.712 points (from 11.781 points estimated in June). This adjustment derives from the following circumstances that point from this financial group.
Un slight rise in the IRR of the 10-year bond during the trimester. Specifically, the yield of the bond has advanced to 1,49% from 1,44% previously.
El EPS estimates cut consensus for 2019 (-0,6% to 827,4 euros) compared to what was estimated in June.
Una higher risk premium (6,2%, compared to 5,35% previously) which includes the loss of momentum that we estimate for the Spanish economy in coming quarters.
A downward adjustment of the valuation model bottom-up.
Ibex 35 downward revision
Under these scenarios, the analysis of this financial entity indicates that we must focus on a cut of -10% in order to anticipate a future downward revision of the benefits used in the valuation models of the Ibex companies. “It should be borne in mind that models top down (Objective PER, among others) incorporate changes in growth prospects earlier while micro analysts (analysis bottom up) tend to react less quickly ”explain the equity analysts of this financial group.
This is more or less what other analysts specializing in equity markets are saying, suggesting that a downward revision in the outlook for the national stock market would be normal. Something that in the end is not entirely negative if one takes into account the direction that the international stock markets were taking at the end of last year. Where the Ibex 35 came close to the level of the 8.500 points. Since the 9.200 in which it is in these precise moments.
Danger of a bullish trap
In any case, it is very important to appreciate that these increases that are taking place in equity markets around the world may become a trap. Not surprisingly, it causes a good part of small and medium investors to enter the financial markets before his general feeling. With the obvious risk that they could get caught in their positions. That is to say with the quotation prices very far from the purchase price. This is something that has happened historically and that can create more than one problem for you from now on.
Of course, you cannot forget that the underlying trend of the equity markets is still bearish and this is something that cannot be doubted at this time. At least until support levels of a certain importance are exceeded and that in the first place it is located in the vicinity of the 9.800 points. In this sense, there is still a long way to go and it is unlikely that these objectives will be achieved in the short term by small and medium investors. In any case, it is a risk that you have to assume if your intention at this time is to take positions in the stock market again.
Reduce positions in the stock market
On the contrary, these increases can be used to reduce your positions in the equity markets. So partial or total depending on the investment strategy you are going to use this year. Taking advantage of the rallies in the prices of the shares of listed companies. So that in this way, your movements can be positively settled in the face of possible instability in the financial markets in the coming days or even months. It is an eminently defensive strategy that aims to preserve your capital over other technical considerations.
On the other hand, you cannot forget that it is better enjoy capital gains generated before you can drop a lot of euros along the way. In a year that seems very complicated for these financial assets. Where at any time you can initiate downward movements in the international equity markets. With an intensity that may surprise a good part of small and medium investors. Beyond other technical considerations and maybe also from the point of view of its fundamentals. Do not forget it if you want to provide greater security to your operations on the stock market.
Finally, you should not forget that these first months of the year are usually very favorable for the interests of the equity markets. Traditionally it has always been this way and this year has been no exception. It cannot be forgotten that the Ibex 35 came from a situation of extreme weakness and that it was in a position to position itself below 8500 points. A very radical change in the equities of our country and that has caught a good part of the small and medium investors with the changed foot. Now it remains to be seen how far the selective index of national equities can go. Do not forget it if you want to provide greater security to your operations on the stock market.