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Last June, we took a look at Spain’s IBEX, which appeared to point towards an interim low with the possibility that its cyclical decline had run its course. With a little less than a year from that observation and with a more than 45 percent rally in the IBEX from the post Brexit lows of late June, the window to buy into the reflexive rally appears to be closed. In fact, when contrasted with the historic perennial unwind of the Nikkei that we’ve followed and utilized for guidance in Europe over the past 4 years, the IBEX’s swift retracement rally has already met the comparative highs of the Nikkei in late March 2000. The retracement level represents both a long-term technical and sentiment hinge, as a potential higher high of the IBEX’s broad inverse head and shoulders would be a bullish long-term development, reinforcing the markets reflexive tendencies already in play.
That said – and why we incorporate historic comparative trends as guideposts in the road, we’re more inclined to view the rally as advanced with a greater possibility that the more bullish assumptions made of Europe have been predicated on false hopes. Considering the recent collapse of the gap between “soft” and “hard” data here in the US, hope certainly wasn’t in short supply. Is it enough to keep the cycle going? We wouldn’t bet on it.