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IBEX: Follow Up of the Long Term EWP

I maintain unchanged the long-term count (Last update on February 26)

Preferred Count: From the November 2007 top price is unfolding a Double Zig Zag.

Therefore from the July 2012 low price is tracing the second wave (B).

Since price has reached the 0.618 retracement of the previous wave (A) and the pattern from the July low is not complete yet, the wave (B) should top in the range of 10884 (0.786 retracement) - 12240.50 (Wave X top)

Once the wave (B) is in place I expect a large wave (Y) down.

The wave (Y) has a theoretical target at 2902.70 (If the extension equality is fulfilled) or it could have a similar size of the previous wave (A), which measures - 6335 points.

IBEX Monthly Chart
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Overall pattern from the July low:

Price should either unfold a Zig Zag (ZZ) or a Double Zig Zag (DZZ).

So far we have a 3-wave up leg.

In my opinion we can make the case that on March price completed the wave (A) with an Expanded Leading Diagonal. If this count is correct from the June lows price has began the wave (C) of the (ABC) or the first (C) of the (ABCXABC)

The wave (C) has a theoretical target in the range 10273.50 - 11982.33

If price is unfolding a Zig Zag the 10 wma which is located at 9293 should no be breached. (Therefore if the 10 wma does not hold the DZZ will become the preferred count)

IBEX Weekly Chart
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Lets now have a look at the weekly momentum indicators

  • The RSI reached on October an unsustainable overbought reading but without negative divergence therefore we already know that price has more business to the upside before a major top can be considered in place. During the expected pullback the trend line in force since the June low should not be breached.

  • The Stochastic from an extreme overbought reading has begun to roll over and it has issued a bearish cross. If the expected correction is muted then the stochastic should not breach the 80 line.

  • The MACD has a bullish cross in force since the end of July. As long as it is not reversed the trend remains up.

IBEX Weekly Momentum Chart
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EWP from the July 2012 low

1. Zig Zag:

If this is the correct pattern from the June 21 low price is unfolding the impulsive wave (C). In my opinion at the October 21 high price has established the wave (III) of (3). If this is the case the wave (IV) pullback should bottom in the range of 9778.70 (Gap fill) - 9243 (50 dma), from where it will resume the impulsive sequence.

If the October 29 low holds, instead of a downward correction price could be forming a Triangle wave (IV).

IBEX Daily Zig Zag Chart
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2. Double Zig Zag: It would become the preferred count if during the expected pullback the 50 dma were breached. If this is the case the assumed wave (X) should bottom on the range: 9086 (0.382 retracement) - 9243 (100 dma).

Once the wave (X) is in place price will unfold the last Zig Zag up.

IBEX Daily Double Zig Zag Chart
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In spite of the bearish daily momentum indicators it is remarkable that the IBEX has not began yet a larger downward correction. If the US market is on the verge of kicking off a multi-week pullback I don't think that IBEX will be able to withstand a temporary "global" Risk Off environment, in which case I would expect the Stochastic to drop to the oversold zone before a new buy signal is issued.

IBEX Daily Momentum Chart
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Lastly due to the positive correlation of IBEX vs EUR the recent sell off of the EUR should exert down side pressure to IBEX.

IBEX versus Euro Chart
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On Friday I bought INVEX.MC (IBEX short etf) with a stop below the October 21 low.

 

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