Despite five consecutive quarters of economic contraction, Spain’s IBEX 35 Index and the iShares Spain ETF closed in positive territory on GDP report.
On November 15, third-quarter GDP reports were released, showing just how miserably things have been going in Europe. Eurostat reported that third-quarter GDP fell by 0.1% in the Eurozone. Spain’s GDP declined for the fifth consecutive quarter, falling 0.3 percent. Although all of the other major stock indices fell more than 0.50 percent when GDP reports were released on November 15, Spain’s IBEX 35 Index advanced 0.29 percent. The iShares MSCI Spain ETF (NYSEARCA:EWP) finished the day’s trading session with a robust gain of 1.2 percent. Why? Spain must be using some magic, which the rest of us just don’t understand.
On November 17, Spain hosted the Iberoamerican summit in the nation’s southwestern port city of Cadiz. The summit brought leaders of Spain and Portugal together with leaders of Latin-American countries. The irony of the situation was difficult to miss. In the very port city where gold and other treasure, plundered from South America, arrived on Galleons during the 16th century, leaders of the very countries who exploited and colonized South America were asking for help from the same countries they had previously exploited. In fact, Spain’s King Juan Carlos made an appearance to literally beg the Latin American leaders to invest in Spain and do business with Spanish enterprises. For their part, the Latin American leaders were more than willing to cooperate, while at the same time advising the Spanish and Portuguese leaders that their own experiments with economic austerity were futile.
The charts for Spain’s IBEX 35 Index and the iShares MSCI Spain ETF demonstrate that the EWP ETF tracks the performance of the IBEX within a reasonable degree of accuracy. The EWP chart (below) has a double top (indicated with the green bar) signaling that further decline is likely. EWP broke below its 50-day moving average of 28.26 and at 27.14 it is halfway down to the next support level: its 200-day moving average of 26.28. Its Relative Strength Index is 42.16 – consistent with that of the IBEX, which is 41.79. Charts courtesy of Stockcharts.com
The chart for the IBEX 35 Index (below) exhibits what is actually a triple top. At 7,588 the IBEX has broken below its 50-day moving average of 7,837 and it has fallen halfway down to its 200-day moving average of 7,437.
As the charts for both Spain’s IBEX 35 Index and the iShares MSCI Spain ETF suggest, Spain’s luck is about to run out. Unless Prime Minister Mariano Rajoy has more magic ready, it could be a bad time to have money invested in Spain.
Europe ETF Update:
Vanguard MSCI Europe ETF (NYSEARCA:VGK): -0.63%, This ETF is designed to track the performance of the MSCI Europe Index. The MSCI Europe Index tracks the Europe stock market performance as reflected by the performance of top companies and sectors in developed Europe including France, Germany, Greece, The United Kingdom, Sweden, Norway, and Italy.
iShares MSCI Germany Index Fund ETF (NYSEARCA:EWG): -0.69%, This ETF is designed to track the performance of the MSCI Germany Index. The MSCI Germany Index tracks German stock market performance as reflected by the performance of top companies and sectors in Germany including Siemens, Bayer, SAP, and Deutsche Bank.
iShares MSCI Spain Index ETF (NYSEARCA:EWP): -0.48% EWP is the only ETF based on Spain. EWP has been amazingly resilient despite the awful challenges Spain has faced during the past six months. On June 1, EWP was trading at $21.23 per share. After hitting $30 on October 17, it closed at $27.15 on November 16. Learn More About iShares ETFs
Bottom line: Investors with long positions in Spain’s IBEX 35 Index or the iShares Spain ETF (NYSEARCA:EWP) have been the beneficiaries of some Spanish magic. Unless we see more magic from Spain, those investors could be facing some losses.