Ibex 35 in August 2010: A Summer of Uncertainty

Ibex 35: August 2010 ranged between 9,760 and 10,900 points

The Ibex 35 kicked off August 2010 with futures at 10,523 points, the euro/dollar at 1.3055, and the S&P futures having marked 1,109. Based on this snapshot, the longest summer gamble began. Would the index head to 11,200 or plummet towards the 4,000 that the most pessimistic predicted? No one had the answer. And since no one did, for weeks, the strategy was to draw lines, monitor volume, and pray that an external event wouldn't spoil the position prematurely.

Why were the Ibex's 10,080 points the summer's red line?

Because that level would determine if the rebound had momentum or if it was a textbook double top. The map being used in those days had several well-marked levels: a loose first level at 10,820, a double top in the 10,700/800 area, and above that, the main target. If the index strongly broke above 10,925, the scenario would shift directly to 11,075-11,200. On the downside, the reference was the 10,200/300 area, which several voices considered a mandatory target before August 11th.

The S&P showed a similar pattern with different figures. The key support was at 1,040: losing it would open the door to 1,010. Surpassing the 1,060-1,070 band would return the market to the 1,100-1,120 zone. Everyone agreed on the chart; almost no one agreed on the sequence of events.

The day the script was broken was the Fibonacci day. The Ibex lost the 38.2% Fibonacci level at 10,040 and sought support at the next level, the 50% Fibonacci at 9,760. It stopped thirteen points short. Thirteen. That detail, which would sound like an anecdote to any layman, was for days the central argument for those who maintained that the floor would hold.

What did the Federal Reserve minutes of August 10, 2010, reveal?

They were the anticipated catalyst. The meeting was scheduled for 8:00 PM, and the prior consensus was unanimous in its diagnosis: bonds wanted to hear about controlled inflation and weak growth; stocks, about controlled inflation and reasonable growth. A textbook impossibility that the market digested through statements.

The underlying issue was the context. According to several circulating analyses, Ben Bernanke's statements, which the market was interpreting positively, actually implied the opposite of what they seemed: that the situation was very, very complicated. A good part of the summer consisted of this perverse game. The worse the underlying data, the more reason for central banks to continue injecting liquidity, and the more liquidity, the higher the indices. The stock market moves counter to logic. Of course. Anyone could do that.

The market move no one could explain

There was one session that broke all the patterns. A sharp upward move, over a hundred points in one go, which caught technicians, fundamental analysts, and numerical systems off guard. A recognized analyst was pulling his hair out, unaware of the cause. The most repeated hypothesis was that of a trader acting on their own account, a rogue trader who moved around fifty pips at once and unsettled half the trading floor.

The episode left an uncomfortable conclusion: those who traded with tight stops would lose their position even if their analysis was correct. Those who used very wide stops survived, but at the cost of risk that was difficult to justify. Amidst this storm, the Stoxx index crossed its 200-day moving average in just ten minutes, and the Ibex reacted by braking sharply at the 10,300 mark.

Why was the DAX rising while the Ibex and Dow were stuck?

Because the German DAX had been the only index with a clearly bullish trend throughout 2010 since the beginning of the year. In August, it surpassed its annual high. While the Dow seemed to be crashing, the German index remained imperturbable, and those who trinc its structure interpreted this calm as a preview of the move the major players were preparing. The Ibex, on the other hand, lived up to its fruta as a narrow market: any medium-sized entry or exit moved the price much more than it should.

Breadth indicators also did not help to calm nerves. The Ibex's Advance Decline line reached a historical high of -398, while the Konkorde indicator had signaled strong hands buying for two consecutive sessions. Contradictory signals that are understood in hindsight, never beforehand.

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China, Morgan Stanley, and the PIGS as a Counterbalance

While candles were being discussed, macroeconomic events continued their course. China acquired 10% of Morgan Stanley, a deal seen as a sign of Asian financial strength. In the same vein, the news that Burger King was up for sale due to insider trading movements.

The geopolitical reasoning deployed then had its logic: with the United States and Japan printing money at full estimulante ilegal, the European Union would have to use peripheral economies as a counterbalance—antiestéticar of default as a tool—to keep its exchange rate under control. The risk lay with China, where the problems were not deflationary: if they insisted on keeping their currency artificially low, they might be forced to cut off the liquidity tap.

AI Systems, Excel, and Projections with Eight Pips of Error

The technological backstage of that summer deserves a separate paragraph. One trader explained that he worked with proprietary software of over 20,000 lines of code: several feedforward-type networks and a couple of recurrent ones that took tick-by-tick data, self-trained with resilient backpropagation every ten minutes, and adapted automatically to sharp market turns. In 2010, that sounded like science fiction.

Another directly built his dynamic charts with Excel, capturing real-time prices from his broker to calculate his own indicators without leaving the spreadsheet. The most discussed utility was recreating the evolution of the Eurostoxx options expiration most favorable to strong hands, which was around 2,700: above this level, moving the index upwards was more expensive for them than letting it fall.

Precision successes, when they occurred, were remarkable. An intraday low projected at 9,972 actually turned at 9,964. Eight pips deviation. For someone who boasted of having hit the bottom exactly, it's clear that I don't need to say anything, I'm saying it all.

The Lesson of Stops

Of all the conclusions from that period, the one repeated most often was about risk control. A stop-loss can save a profitable trade or ruin a winning position. In a particularly boring session, with a total range of less than 60 points, someone closed short positions at 10,000 with only fifteen pips of profit, tired of holding on.

There were also those who recommended moving short positions to stop profit as long as the VIX didn't go wild and the Ibex respected two minor lines. The strategy paid off: the session reversed, and those who had set automatic exits saved themselves from watching their gains evaporate. Those who didn't learned the lesson through lost profits.

Groundhog Day Summer

The last session of the cycle closed with a mediocre movement and the same diagnosis repeated day after day: major players absent, low volume, indices swinging directionlessly. The Groundhog Day summer, someone called it. The DAX at its highs, the Ibex stuck, and the Fed minutes already digested.

The ceiling for the September rebound was seen at the Ibex's 11,200 points and the S&P 500's 1,130-1,151 band. From there, a new chapter of declines was expected, which this time could break supports. No one would guarantee it. With these contradictory indicators, any prediction is worth exactly as much as the stop-loss accompanying it.