Spain - Careful What You Wish For

By: Erik Swarts | Sun, Nov 20, 2011
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"Spaniards voted on Sunday in an election expected to return the country's centre-right Popular party (PP) convincingly to power after seven years of rule by the Socialists, who have been mired since 2008 in a deepening financial and economic crisis partly of their own making.

"We need something fresh," said José Luis Varela, an architect, shortly before casting his vote for the PP in a wealthy suburb north of the capital Madrid on a rainy autumn day. "A changeover is necessary." FT - Spaniards vote for change as crisis deepens

At the beginning of July I sent out a cautionary note that implied that Spain was on the cusp of violating it's long term technical structure, that if confirmed - would mark a significant trend reversal.

"The long term chart below is of Spain's equity market ETF - EWP. I tend to use line charts for conveying strategy points and candles for tactics. There's still quite a ways to go in July, but as of this morning it has broken back through the symmetrical triangle it has traded in for the last four years - indicating a very preliminary false breakout.

Symmetrical triangles are a very common formation utilized by forex and equity traders in intraday and daily time frames. They are typically a continuation pattern. However, the longer the scale - the more likely it will mark a trend reversal." "Running" of the Bulls

Now that the reversal has reaffirmed itself this month after bouncing off of the lower support trendline in October, Spain appears to be the first of the major European economies poised to break through the back of the triangle/wedge formation - confirming the trend change.

It should be noted, that although Spain may present yet another confirmation of Europe's long term fiscal and growth concerns, over the past 10 years it has continued to outperform its closest European counterparts by a significant margin.

In light of the new mandate for change in Spanish politics, and considering it is widely understood that Spain has for the most part papered over its vast debt and structural concerns - a new centre-right governing party will likely take the opportunity to expose the considerable damages inflected by the Socialists party.

It is more or less just another microcosm within the European crisis, but the performance differential is noteworthy and likely exploitable through either a pair-trade or an outright short position.

More to come in this line of thinking, and what this small technical breakdown could imply for currencies, commodities and the equity markets.

"Life is not complex. We are complex. Life is simple, and the simple thing is the right thing." ~ Oscar Wilde

 


 

Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

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