After twenty consecutive sessions in which the main European stock exchanges managed to close each day above the lows of the previous session, this impeccable sequence has finally been broken.
This happened last Tuesday, and since then the economist I warned that the powerful rebound that stock markets began after the panic session of August 5 may have plateaued.
The declines we have seen since then only confirm this working hypothesis: in the short term, we are in a phase of digestion or consolidation of part of this strong rise, which in the case of the EuroStoxx 50, led to the 4,473 to 4,986 pointsThe minimum requirement in these consolidations is for prices to retrace at least 38.20% Fibonacci of the entire bounce.
Any break of this first theoretical support should be interpreted as a sign of weakness, suggesting that the consolidation could be broader and more complex, possibly with two descending waves or a zigzag pattern (fall – rebound – fall) before finding a floor and resuming the trend. increases.
Furthermore, this behavior could indicate that the decline may need to be corrected back to the 61.80% Fibonacci level, which is two-thirds of the previous rally, which is consistent with support according to Dow Theory. This level tends to work better than the 61.80% Fibonacci retracement, which I have proven in over 25 years of experience.
I share this with you because the recent drop has led some of the most important indices, like the Nasdaq 100 and the EuroStoxx 50, to start breaking through this first support of 38.20% Fibonacci, like the 19,000 points on the technological index or 4,790 on the European reference. So there is no need to be in a hurry to buy; I fear that a possible rebound is vulnerable and will be part of it zigzag This could bring us to levels where we would consider it appropriate to buy. These levels coincide with a decline of 61.80% or 66% of the rebound, which would place the EuroStoxx 50 at 4,650/4,670 points and the Nasdaq 100 at 18,285/18,390 points. Note these levels, because there we could be shooting for an upward scenario in the coming months.
If you ask me what level would need to be lost to cancel the short/medium term uptrend and justify a reduction in exposure to the stock market, I would tell you that the key support is in the 5,100 points of the S&P 500. This critical support is currently 7% distancebut if the buying is done around the 61.80/66% adjustment of the rebound, which in the S&P 500 would be 5,300/5,325 points, the risk would be reduced to just 4%.
