IBEX 35 index forms a risky wedge pattern as its rally stalls

The IBEX 35 index has done well this year and is hovering at its highest point since February 2010. It rose to a high of €12,000, much higher than the pandemic low of €5,808. 

The index, which tracks the 35 biggest companies in Spain, has risen by 17% this year. Other European indices like the CAC 40, FTSE 100, and DAX indices have also gained by double-digits this year. 

European Central Bank and global central banks

The IBEX 35 index has done well this year, helped by the actions of the European Central Bank, which has continued cutting interest rates.

The bank decided to cut interest rates by 0.25%, bringing the benchmark interest rate to 3.25%, down from the year-to-date high of 4.0%.

It did that because the European economy is not doing well, with Germany, the biggest country, remaining in a recession.

Consumer inflation has dropped in the past few months. Data released last week showed that the headline Consumer Price Index (CPI) dropped to 1.7% in September.

Spanish and other European stocks do well when the ECB is cutting interest rates for several reasons. First, lower rates make it easy for companies in the region to borrow money and fund their growth.

Second, lower interest rates incentivise investors to move from the bond market to equities. And third, lower rates push more people to invest in the stock market. 

The Spanish economy is doing modestly well, helped by the tourism sector. Data shows that the country recorded over 42.5 million visitors in the first half of the year, a 13% increase from the same period last year. 

Analysts expect that Spain’s visitors will be much higher than the 85 million it recorded last year. This explains why the services PMI data has jumped to 57, the highest point since April 2023.

Unlike in most countries, Spain’s manufacturing sector is doing well, with the PMI index rising to 53 in October. A PMI reading of 50 and above is a sign that a sector is doing well.

Spain’s inflation has also continued falling, with the headline Consumer Price Index (CPI) falling from the 2022 high of 10.8% to 1.5% in September. 

Top IBEX 35 performers

Spanish banks were the best performers in the IBEX 35 index this year. Banco de Sabadell shares have soared by over 65% this year, helped by the hostile takeover from BBVA, a move that will create one of the biggest banking brands in the country. 

BBVA hopes that a bigger brand will help it to compete with other Spanish brands like Intesa Sanpaolo and Banco Santander.

Caixabank stock has also soared by over 45% this year, helped by the strong interest income as the number of customers rose. It has over 20.2 million customers, while its total assets jumped to €630 billion. Net interest income rose by 20% to €5.5 billion, while revenue from services rose by 4.4% to €2.4 billion.

Other Spanish bank stocks like Bankiter, BBVA, and Santander have risen by over 10% this year. The challenge, however, is whether these firms will continue doing well in the coming months as interest rates fall.

The other top performers in the IBEX 35 index are Inditex, whose shares have soared by 36.8%, Iberdrola, IAG, Laborat.Rovi, and Unicaja Banco. 

IAG, the parent company of British Airways, which is also listed in London, has done well, making it one of the biggest airline stocks.

On the other hand, Grifols has been the worst-performing company in the IBEX as its stock crashed by over 35%. The company has come under pressure after facing substantial short seller attacks, who have accused it of shoddy governance and a lack of transparency. It has now received a takeover bid from Brookfield and the founding family in a deal valued at 5.5 billion euros.

The other top laggards in the index are Acerinox, Acciona, Enagas, Solaria, and Acciona Energias Renovables, which have plunged by over 20% this year.

Is the IBEX 35 index a good buy?

IBEX 35 chart by TradingView

The weekly chart shows that the IBEX 35 index has been in a strong bull run in the past few months. It peaked at €12,000 in September and has pulled back to €11,840. 

The index has remained above the 50-week and 100-week Exponential Moving Averages (EMA), meaning that bulls are in control.

Oscillators like the Relative Strength Index (RSI) and the MACD indicators have all pointed upwards. 

However, the index has also formed a rising wedge chart pattern, which is nearing its confluence level. Therefore, while more gains are possible, a pullback cannot be ruled out, especially in 2025.

The next key catalyst for the IBEX 35 index will be corporate earnings from US and Spanish companies.

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