Spanish stock market looks ready for a sell-off

The Spanish Stock Market Index is facing significant pressure as Euro area inflation rose higher than expected. July's inflation figures showed a 2.6% annual increase, slightly above the previous month's 2.5%, matching May 2024's level. Despite the rise in inflation, the unemployment rate has only marginally increased from 6.4% to 6.5%, still holding multi-year lows not seen since at least 1995, when records began. This indicates that the labour market remains strong and could fuel inflation down the road.

Yesterday the IBEX 35 saw a sharp drop of approximately 1.75%, reflecting investor concerns. Additionally, the Spanish market is dealing with its own domestic issues. Today, the situation has become particularly interesting as the price appears to have triggered a large triangle pattern that has been forming over the last 93 days. We are now close to breaking below a critical support level at the July 9th low of 10,867. A break below this level would likely confirm the activation of the bearish pattern, with the trend expected to remain negative as long as the price stays below 10,952. This current market situation is of significant importance and should be closely monitored.

The triangle pattern suggests potential targets of 10,700, followed by 10,600, ultimately reaching the pattern target 10,533. While the price is unlikely to drop to the lowest target, the current setup allows for a favourable risk-to-reward ratio.

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