With less than a month left until the end of the year, the eyes of investors and analysts in the stock market only point in one direction: the appearance of the ‘Christmas Rally’. And more, knowing that despite the consolidation of recent weeks, the supports of the main European stock markets still remain standing.
This is the case, for example, ofyou 10,900/11,000 points of the Ibex 35whose drilling has not materialized. In fact, for now, the national index “continues to remain strong and in a price zone that is in no man’s land,” explains Joan Cabrero, technical analyst and strategist at ecotrader.
Nor have they fallenThe supports that indices such as the EuroStoxx 50 in its Total Return SX5R version (the one that takes into account the distribution of dividends) face at 10,900 points (corresponding to the August minimums) or like the 18,900 points of the German Dax 40, the other major index that since ecotrader monitoring is recommended.
The EuroStoxx 50 Total Return has been at some points in recent days close to 11,050 points, just 1.3% from that key support. Above all, after the publication this Friday of the preliminary readings of the purchasing managers’ indices (PMI) prepared by S&P Global. “The eurozone economy appears to be heading towards contraction as we approach the end of the year, at least according to this month’s composite PMI for business activity, which plummeted to its lowest levels since January,” he explained as soon as he learned leading indicator of private sector activity, Matthew Ryan, head of market strategy at global financial technology company Ebury.
“In this context, it would be ideal for the market to threaten to break that level and then execute a reversal, a technical figure that usually marks significant turns, especially if a bullish gap appears in that turn,” the expert explains in his weekly strategic commentary. of Ecotrader, while ensuring that, if it happens, “we would be facing an unbeatable opportunity to position ourselves upwards“The risk of buying in that area would be minimal compared to the potential reward.”
And it is that, The first bullish objective would be at the annual highs, currently 6% away; it would be 10% if it approaches support again. “Overcoming it would open the door to new increases, possibly of at least another 10%, so in total, we could be talking about potential increases of between 10% and 20% if the support of 10,900 points remains firm” , sentence.
That is, the key to a possible christmas rally is in the hands of the support of the 10,900 points of the EuroStoxx 50 Total Return. It will depend on whether the investor can close the year with optimism or faces a more challenging start to 2025.
Operational strategy
“Operationally, I suggest managing a stop weekly at 10,900 points, which means that we would only execute sales if that level is lost at the close of a Friday. Should the market approach the August lows without breaking them, I don’t think it’s a bad idea to buy the European stock market again around 10,900/11,000 points, since they offer an excellent risk-return equation.“, Cabrero details, while reiterating that “it is more time to buy than to sell, always keeping in mind that if critical supports are lost we will have to retreat and go to winter quarters.
The key is to be disciplined and not lose sight of these strategic levels… and to take advantage of the liquidity obtained with the exposure cuts that may have been made once on the other side of the Atlantic, two weeks ago the Russell 2000 -the index that reflects the behavior of small and medium-sized American companies – reached the goal it had set in stone at the height of 2021.
“Those who followed Ecotrader’s recommendations and alerts will have been able navigate calmly the recent falls. Reducing exposure by 25% of the invested capital – that is, selling 25,000 euros out of every 100,000 – has given them liquidity to take advantage of opportunities, and now, that ammunition can be directed towards Europe or reserved until the North American indices fall 10% from their last peak, a rule that worked very well last August.
This rule encourages you to buy or increase your exposure to equities with a medium-term perspective, as long as the indices, in general, have corrected at least double digits since their last maximum. That is, it is a technique that involves patience and waiting.
Pay attention to central banks
The behavior of the market in the coming weeks and months will largely depend on the actions of central banks. It is one of the catalysts that analysts and investors focus on the most.
And more so, given the possibility that Europe’s central entity will apply a rate cut of 50 basis points at the December meeting, which has gained strength in recent sessions, putting downward pressure on one euro and favoring a rebound in exchanges that, in the short term, have slightly separated the Ibex 35 and EuroStoxx 50 from their key supports.
Euro/dollar rebounds after its lows
After four sessions of decline, the euro managed to reverse the trend of recent weeks at the beginning of the week, rebounding against the US dollar with an advance that at some points during the day exceeded half a percentage point. .
And in nine of the last 11 days the community currency had traded negatively against the greenback, becoming one of the most bearish currencies of the 10 most traded on the planet.
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