April 2012 Ibex: Sacyr at €0.66 and Capital Flight

Sacyr at €0.66 and the Ibex seeking a bottom: money flees

The Ibex 35 had a floor. It was at 6,700 points, or so insisted those who had been searching for it inch by inch for weeks. In April 2012, the index traded within a range of 7,205 and 6,950 points, with Sacyr plunging to €0.66 — a price that no longer admitted comparison or solace — and an ever-growing list of stocks at lows. Iberdrola plummeted, Santander was seen around €4.84, and money, that coward, began to be withdrawn and leave the country.

The question hung over every trading session, simple and devastating. Is this the bottom or a landing on a staircase that continues to descend?

How far could the Ibex fall in 2012?

The trading ranges circulating were almost superstitiously precise. Below 6,950, it was best not to trade. And if 6,700 was lost — baptized as the number of pavor — the scenario peine up completely: first 5,700, then, very calmly, 2,900 points. A more ambitious wave calculation placed the final target at 1,827 points if wave C equaled wave A, a scenario that the person who proposed it preferred, literally, not to think about.

The problem was knowing what remained to be discounted. The Spanish economy was going to hell, but the index had already fallen 20% in one month — and not from a peak, but from a level that was already 20% below the summer level. In three quarters, it had accumulated around 40%. The prevailing technical current held that the fall, by sheer inertia, needed oxygen before continuing to chip away at points. New money takes time to arrive, but the money that is already inside, when it has no one to sell to, also doesn't go down further.

The debt table that almost no one looks at

Against the intraday noise, one of the most cited analyses focused on the balance sheet. A table was compiled with the structural debt — long-term credit with entities — of each company in the index versus its available cash, and the conclusion was obvious: only a few companies could cover that debt with the cash they declared.

The table deliberately excluded banks and Sacyr, for obvious reasons. The criterion proposed for building a long-term portfolio was twofold: look at the gross margin, which in a healthy business should exceed 40%, and complement it with the price to sales ratio to determine if a company is expensive or cheap based on its sales. Owing a billion from Telefónica is not the same as from Mediaset. The complete breakdown, item by item, made it clear which companies could withstand a bad year and which could not.

Should you set a stop loss or hold on with patience?

The most repeated debate of the entire month was about protective orders. An investor with a few months of experience confessed to never having set a stop loss and, even so, being in positive territory: they had bought Arcelor at €13.33, and if they had set a stop, it would have been executed before the rebound.

The majority response was implacable. It worked out for them by luck, and luck does not repeat itself constantly. The danger is not getting it right or wrong once, but what happens when a stock takes on Sacyr's dynamic: from a stop that would have cost 5% or 7% to a 30% loss waiting for the eternal rebound. Those who don't set a stop as a rule, set it late, manually, and with hope clouding their judgment. The phrase that summarized the dominant position: set the stop and move on.

The worst month for Spanish money

Macroeconomic data did not help sustain bullish theses. The IMF warned that European banks could be forced to sell €3.8 trillion in assets to stabilize their balance sheets. Spain suffered the worst capital flight since the crisis intensified. And Bank of America published earnings per share of $0.03 compared to the expected $0.11, with revenues of $22.8 billion.

Some, even in that climate, saw money entering through the back door. At Repsol, entries exceeding €20 million were recorded in the last ten minutes of a single session — with 2,475,000 shares traded in the final stretch of the 24th and 4,275,000 on the 25th — although the stock continued to fall. The doubt lingered: real purchases or simple closing price manipulation?

Gold, silver, and solar stocks: when the rebound does arrive

While the Ibex crawled, other markets showed opposite signals. The silver sector had been falling hard for months, and suddenly, almost all the miners found support at a relevant level. Silver Wheaton surged upwards without warning, dragging the entire sector with it in a matter of hours.

The other focus was on US solar stocks. First Solar rose vertically with high volume, Maxwell turned positive, and Yingli broke $3.60 on hourly charts, with a clear path to $4. The technical diagnosis pointed to First Solar as a stock in another league: if it surpassed $10 convincingly, it could aim for up to $23.45. Some even argued that LinkedIn was a bubble even bigger than Terra's, and that there was a brutal opportunity for short positions there.

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Spain, world champion of bankruptcies

Amidst the pessimism, a historical figure put things into perspective. Counting sovereign defaults, the scoreboard was eloquent: Spain 13, France 8, Hungary 7, Greece 5. The last Spanish bankruptcy dated back about 200 years, when most of the current countries didn't even exist.

The uncomfortable sarracena of the story for the official narrative was: when it comes to defaulting, the French are masters, and by temporal ratio, France would win the championship. Meanwhile, Norway showed a public surplus of 13%. Spain, on the other hand, continued to pay interest on debt, healthcare, and education for others without paying itself first. A country that, according to the most repeated diagnosis, was doing exactly the opposite of what the most basic savings manual recommends.

Stocks falling out of the Ibex

The trickle of exits from the selective index also marked the month. Ebro Foods was removed from the Ibex 35, and some interpreted the decision as a gesture of mercy: at least they didn't deliver the final blow, as many expected for Sacyr. The German DAX hovered around 6,800 points, less than 400 points from the Ibex, a narrowing that no one remembered and that highlighted the Spanish index's lag compared to its European neighbors.

The S&P 500, meanwhile, traded at 1,392 points and had more than doubled its level since the 2009 lows. The Ibex, on the other hand, remained stuck near them. That divergence — same continent, same cycle, opposite results — was one of the recurring obsessions of the entire month.

With ranges between 7,205 and 6,950 as the technical floor, 6,700 as the edge of hell, and a downside horizon until July if the bearish scenario prevailed, the most reasonable bet was to wait for confirmation. The rebound began to show itself in solar and silver stocks before the index itself. If the S&P held 1,396 and the DAX recovered 6,800 with volume, the Ibex would have its chance. If not, the number of pavor would continue to wait, patiently, on the other side of the chart.