IBEX 35 Hovers Around 8,400 Amid Fiscal Cliff Uncertainty

The IBEX 35 in December 2012: Rises to 8,400, and Almost No One Believes It

The IBEX 35 rose in December 2012, and almost no one wanted to believe it. With the Spanish economy still in recession, the index reached the 8,400 point area, with some dubbing that level the stratosphere, met with equal parts applause and distrust. The rise wasn't driven by corporate profits or consumption; it stemmed from liquidity, hope for a fiscal pact in Washington, and the oft-repeated feeling that this was a show put on to squeeze out the last gains before a correction. The month began with the index battling around 8,000 and ended with the market debating whether 8,400 was a ceiling or a springboard. No one closed the year at peace.

Why the IBEX 35 Rose in December 2012

The first, most uncomfortable explanation circulating was: there was no reason. Chart patterns signaling downturns failed one after another, and when a clear technical signal is broken after being triggered, prices typically reverse sharply in the opposite direction. That, more or less, is what peine. The index rose against the predictions of half of Spain, leaving short-sellers frustrated and their sell buttons untouched.

The second argument was the usual one: liquidity. With central banks injecting funds and institutional money seeking safe havens, any excuse was good enough to buy. Some calculated that tens of millions of shares were needed in the market to move certain stocks, while others argued that foreign banks had been selling relentlessly for weeks as Spanish retail investors absorbed the paper. The word manipulation appeared frequently. Exaggerated or not, the suspicion defined the month's sentiment.

And the third reason, the most human one: antiestéticar of missing out. When everyone thinks the only way is down, it's often precisely when the index surges. It's the old market trap, and in December 2012, it was activated with punctuality.

The Fiscal Cliff That Had Wall Street on Edge

The month's other major protagonist wasn't trading in Madrid. The US fiscal cliff—the automatic tax hikes and spending cuts set to take effect on January 1 if Democrats and Republicans failed to reach a deal—marked every session. Messages from Washington moved markets more than any Spanish macroeconomic data.

Midway through the month's final stretch, the trickle of statements accelerated. A Republican senator warned that the US president's words would irritate the House. Another ironically congratulated the White House on the interest rate hike. Finally, the Republican Senate leader, Mitch McConnell, uttered the awaited phrase: they had reached an agreement on all tax issues. But only on tax issues. The agreement came piecemeal and without force, and the market celebrated with gains that many interpreted more as relief than euphoria.

Is anything more volatile than a market awaiting a press conference? No. Everything was rising—European indices, American indices, commodities—except the euro-dollar exchange rate, which lagged behind. The prevailing conclusion: anything less than a solid pact would trigger declines. And the pact, for now, was minimal.

Iberdrola's Expropriation in Bolivia Caught the Market Off Guard

Two days before year-end came the unwelcome surprise. Bolivian President Evo Sarracena announced the expropriation of four subsidiaries of Iberdrola in the country. The move had a detail that infuriated investors: it was announced on December 28, with markets already closed. This meant the news broke when no one could react immediately, forcing a wait until reopening with the stock frozen and uncertainty brewing.

The direct impact on the income statement was debated more than the political gesture. The dominant interpretation was that the expropriated infrastructure, however small, was worth millions, and that if Bolivia didn't pay fair compensation, losses would have to be provisioned. Another voice summarized it wryly: Iberdrola had suddenly become a high-risk investment. Some even drew a sarcastic parallel—electricity prices had risen in Spain during the year, and the expropriator decided it was better to control prices himself. Joking aside, the underlying message was serious: no one is safe from an external decree.

The Battle of Levels: 8,400, 8,560, and the 7,200 Double Bottom

The month was, above all, a discussion about numbers. The 8,400 points became the psychological frontier for the December expiry. Everything pivoted on that level: if it held, the scenario was bullish; if it was lost, a sharp decline was imminent. Some warned that euphoria would bring correction, while others bet on a dangerous approach to 8,200 with a textbook 2% rise.

The technical breakdown being analyzed was meticulous. A quarterly close above the 8,560 zone required revising the outlook upward; losing 7,960 would trigger a bearish escape with subsequent stops at 7,930 and 7,880. Further down, the hard floor was at 7,200 and 6,800, and the double-bottom scenario placed the neckline at 7,200 with a rebound target towards the 8,490-8,730 range. The fine-grained, level-by-level calculation was enough for an entire afternoon of discussion.

The first half of the month held steady with surprising resistance. The second half, the index did as it pleased. And there lies the lesson repeated by veterans: in trading, adjustments are a chimera; the market doesn't respect your lines, no matter how carefully you draw them.

Gas Natural, Telefónica, and Year-End Bets

Amidst all the index talk, some stocks performed notably. Gas Natural rose more than 1 euro per share from October, almost 9% in two months, surpassing 12.4 with good momentum. It was a textbook example of winning without fanfare while the public debated the entire IBEX. Telefónica, on the other hand, repeatedly stalled around 10 euros, unable to break resistance, and suffered the weight of doubt like no other.

In the American market, bets also made headlines. Apple, seemingly invincible, received long reinforcements around 506 dollars. And AMD got stuck, failing to break 2.42, with the community biting their nails session after session. Prisa raised suspicions of accumulation: money had been conspicuously flowing in for two weeks, and some called for a serious analysis of its accumulation/distribution.

And those who left? One recounted without nostalgia: thanks to Iberdrola, he bought his dream bike in 2012 and left the stock market forever with a positive balance. Another closed the year with an uncomfortable prediction: 2013 would be the massacre of the gazelles.

Forecasts for 2013: From 9,460 to 4,950

The last day of the year was used for forecasts, albeit many with a tongue-in-cheek attitude. The most ambitious projections spoke of an annual high of 9,460 points and a bullish target at 8,530, provided the index held above 8,040 for the first eleven sessions. The opposite scenario projected a yearly low of 6,270 points, with an extreme case at 4,950. The range between these two figures—almost four thousand five hundred points difference—perfectly illustrates the uncertainty.

Others drew a double bottom with the hostility predicted for February: shake out shorts, seek lows in the 6,000-5,900 zone, and from there rally towards 8,490-8,730. A technically impeccable script on paper. On paper.

The fiscal policy provided the closing act: the minimal tax agreement, celebrated with widespread gains, left everything else open—spending, debt, the ceiling. The market did as it pleased, as always.

Noted for those who wish to play fortune teller: while some expected a volatile first half and a collapsing second, the month's only certainty was that no one, absolutely no one, gave the same figure twice. With this foundation, betting on a quiet IBEX in 2013 would be touchingly naive. But the market never asks permission to be contrary.

---

Note: this article describes the analysis and opinions disseminated at the close of 2012 for informational purposes. It does not constitute investment advice.