Ibex 35: From 10,400 to 9,800 in a November of QE2 and Ireland

Ibex 35 Bleeds Below 9,800 as Fed Prints and Europe Trembles

The Ibex 35 started November 2010 around 10,400 points and ended it by breaching 9,800. In between, two undeniable events: the Federal Reserve confirming a new round of stimulus and the outbreak of the Irish crisis. The paradox is uncomfortable: the more money central banks printed, the worse the Spanish index performed. The domestic equity market didn't need euphoria. It needed, as traders repeatedly said, one thing that didn't arrive: a clear gesture from the government.

This is not a session chronicle. It is a record of three weeks in which the Chulibex —as it was nicknamed, half-jokingly, half-seriously— became Europe's worst student. While the German DAX and the Dow Jones regained ground on support levels, here the debate was whether 9,800 was a floor or the beginning of the precipice. The answer, judging by the closing prices, was the latter.

From 10,400 to 9,800: The Fall Nobody Wanted to See

The 10,400 level served as a technical reference from the start of the month. It coincided with the 50% Fibonacci retracement from the August lows, a point many considered a reasonable zone to test long positions without excessive risk. It worked for a few sessions. Then it stopped working.

The first serious warning came with the breach of 9,780 points. From then on, the narrative changed. Talk turned to 'losing 9,800 and a freefall,' to withdrawing money 'even from under the stones' to defend the next level. The 9,490 line appeared on charts as the ceiling of a channel that, if broken, would leave the path clear downwards.

The contrast with other indices was brutal. The DAX approached the ceiling of its expanding channel, the Dow Jones seemed headed for a free run. The Ibex, on the other hand, lagged during rallies and was the star pupil during declines. A decoupling that repeated session after session: it cut back significantly while others rose.

Why Didn't the Ibex Rise While the Dow Hit Highs?

The most common explanation had to do with debt. The indices predicting interventions —a sort of country risk thermometer trinc closely— gave a devastating reading:

• Spain: 23.47
• Greece: 13.44
• Ireland: 3.33
• Portugal: -7.20

As soon as the figure turned positive, they said, intervention was imminent. With Spain leading the table, the market found no reason to buy. It was commented in investment circles that without a real show of will from the Executive in the form of clear short-term measures, there would be 'much suffering' and shorts would be golden. If drastic measures arrived, however, the door to 12,000 would open. Both scenarios were true and opposite. And so the index remained, trapped between two incompatible futures.

The other leg of the argument was the so-called buying days under the Fed's stimulus program. The Federal Reserve was expected to inject liquidity daily. Some celebrated it as a guarantee of a floor: 'Forbidden to go down for the S&P. Whoever tries will be killed.' Others saw the dark side: the stimulus policy only served, they said, to inflate stocks and commodities while the eurozone continued to import volatility. The euro fell against the dollar, and no one was clear whether this was a blessing or an alarm signal.

The Cement Brent: Spain Returns to 1973

Amidst the technical noise, a piece of news broke through with the force of unvarnished data. Cemex, the Mexican cement company, forecast four years of 'containment' in cement consumption in Spain. The director of its Sarracena de Jalón plant stated it bluntly: current production data was comparable to 1973 levels.

That is, the country had regressed almost four decades in one of its economic engines. Construction halted, the crisis loomed, and a sector that did not expect reactivation even in the medium term. When cement consumption returns to levels from 37 years ago, any analysis focused on the index's daily chart becomes, at best, incomplete. The stock market could rebound. Spanish real estate, not.

Is the Ibex 35 Manipulated?

The suspicion was not new and regained strength in November 2010. The theory that the Spanish index moved at the whim of a few heavyweights —Santander, BBVA, Telefónica— circulated openly. 'Nothing is easier to manipulate than this organized scam that is the IBEX 35,' summarized a trader, 'just by manipulating three or four of its main stocks, VOILA, the miracle peine.' Others pointed directly at the European Central Bank injecting money to prevent a sharp collapse.

With Santander falling 4.73% in a single session and Acciona losing 6.62%, the theory had ammunition. But there was a less conspiratorial interpretation: the index was sinking for the same reason the country was sinking, because Spanish banking was the thermometer of a sovereign debt problem that no one knew how to resolve. Santander tested the floor in the 8.40-8.41 euro zone, BBVA sought 7.13, and Telefónica showed signs of wanting to continue falling. When the index's three pillars point south, manipulation ceases to be a hypothesis and becomes arithmetic.

The Lesson of Closing at a Loss

Against the daily noise, the most repeated —and least trinc— advice was discipline. In words collected daily in these discussions: 'Every time you voluntarily close a losing position, your discipline is stronger than your opportunism. You must love handing money over to the market, because every time you do, you are reinforcing your professionalism.' Translation: those who hold a losing position waiting for it to recover are not investing, they are gambling.

The month's own events bore out the skeptic's view. Cross trades in minutes, midday closures 'because I got distracted eating,' shorts with everything and entries at the cry of 'from lost to river.' One day you won with Bankinter, the next you lost what you gained. The nervous rotation on expiration days —it was noted that a negative close would miccionan seven down sessions out of the last eight, something that hadn't peine since March 2009— described a market that neither rose nor fell: it churned.

The Note Nobody Signed

Throughout those weeks, more ambitious projections were also attempted. Bets were placed —on betting platforms, not in the order book— that the Ibex would close November below 10,200, at 6 to 1 odds. Whoever made the bet won: the index ended clearly below. And the other bet remained pending: December below 9,000, at 14 to 1 odds. No one dared to confirm it, because everyone took the Christmas rally for granted.

The most curious premonition of the month was not stock market-related. A local author had been warning since June, in his own text, that banks did not want to sell their properties in good areas and would end up dumping them in batches, causing a sharp drop in prices. Months later, an economic newspaper reported precisely this shift in banking strategy. The real estate forecast was coming true. The stock market forecast, that month, was not.

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With the Ibex 35 in the minimum zone, European indices regaining tonalidad, and the Fed showering liquidity, logic dictated that a rebound had to come at any moment. It had been saying so for weeks. It is still unknown whether the floor was at 9,800, 9,490, or nowhere, because no one —not even the most convinced technician— dared to sign where the base was. The only certainty of November 2010 was the usual one: while some counted rebound points, others counted layoff points.