IBEX 35 in January 2012: Stuck Between 8,400 and 8,600 Points

IBEX 35 Kicks Off 2012 Locked Between 8,400 and 8,600 Points

The IBEX 35 began 2012 with a 200-point range that repeated ad nauseam: 8,400-8,600. And no, it didn't break it. The month's data pointed to a market whose direction was conditioned by the ban on short-selling financials, an ECB injecting liquidity, and a euro bleeding out to 'panic or death' levels. The scenario was so flat that a good part of the thread was spent counting Ibex futures contracts. When the index doesn't move, narratives do.

What Peine to the IBEX 35 in the 8,400 Range

The key figure of the month was singular, repeated like a mantra: 8,400-8,600. All trading was built on this lateral movement. The pattern was almost mechanical — buy low, sell high — and it worked just enough for no one to want to deviate. But that comfort hides a problem: whoever translates the index's range to any stock in the selective is mistaken. An analysis from mid-month crudely pointed this out: if the IBEX stays flat, a specific stock could be restructuring its weight or brewing its own collapse.

Some argued that the DAX was on the verge of derailing: with the German locomotive flirting with 6,000 points, the threat of a medium-term crash stopped sounding like an exaggeration. Others countered that as long as that level wasn't lost, there was room to play mind games. The objective reference was there, whether one believed it or not.

Why Endesa and Telefónica Were the Shortcut to Bet Against the IBEX

The ban on short-selling financial stocks in the selective created a market of substitutes. Since banks couldn't be shorted directly, bearish money focused on other large caps: Endesa and Telefónica served for weeks as the index's bearish proxy. If the IBEX fell, it went through them. The reasoning was openly circulated: the less financial stocks, those believed to be 'punished,' were precisely the ones that allowed the bet to be executed without running into the rule.

The interest in understanding these flows led to the realm of securities lending. It was discussed deal by deal which companies carried the most borrowed capital for short positions. According to the data cross-referenced in the thread, Iberdrola appeared with specific figures: around 520 million shares lent, with a daily increase of almost 8 million. Gamesa, with 20% of its capital in borrowed hands — about 50 million out of 250 — was pointed out as the favorite of short-sellers, and one investment bank's bets gave it a downside potential to 2.48 euros, even below its book value of 2.5.

Those Who Trinc the IBEX Futures Contract by Contract

There was a type of analysis that repeated daily and that almost no media reproduced: the volume of 'leoncios' (large Ibex futures contracts), the minute-by-minute count of large Ibex futures contract packages. Individual operations with names and numbers were noted. A purchase of 3,441 contracts during the expiry week. A sale of 210 contracts disguised as 185. A jump in the balance from -269 to -147 in just five minutes of sudden buying. The interpretation of these numbers is the old market suspicion: big players leave clues, and those clues are worth more than any agency headline.

It's tempting to reduce all this to guessing whether the index goes up or down. The most honest conclusion of the month, written by someone who defines himself as clumsy with words but has years of market experience, pointed to something else: it hardly matters if you guess the direction if your trade goes south due to excessive leverage. What's important is when you enter, when you exit, and at what size. The rest is barstool philosophy.

Monti, Hungary, and a Euro at Lows

The macro context didn't help calm things down. Mario Monti puffed out his chest and declared that Italy was "better positioned than Spain" due to its deficit level, although he acknowledged a historically higher debt. Hungary was negotiating an IMF and EU aid 'without conditions.' The euro was approaching 1.2802, a level the participants dubbed 'panic or death.' And rating downgrades were rampant: one agency had spared France, but it wasn't clear what it would do with Spain.

The final blow came with the macro data. The US GDP came in at 2.8% when the consensus expected 3.1%. The indices' reaction was the usual: first they take all data badly, then well. That choreography — the initial stumble and the recovery that leaves short-sellers looking foolish — was described by a participant with more precision than any analysis desk.

ECB Liquidity and the QE3 Prophecy

Beneath all the noise, the real lever was intuited: monetary injection. The indices, including the American ones, seemed to be discounting a new round of quantitative easing and more money from the ECB. The thesis was clear: closer and closer to global hyper-injection, and with it the 'to the moon' scenario for stocks. The accompanying warning was also not original: that money would have to be repaid in three years, and if there's no way to do it, another rollover and keep going. Inflation, they said, will appear when banks start lending again and the ECB doesn't withdraw liquidity.

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With the thread surpassing 4,000 replies before the end of January, the debate had resolved nothing. The Ibex remained trapped in its range, short-sellers continued seeking shortcuts outside financials, and the euro breathed with difficulty. The most repeated prediction for 2012 was an -10% annual, with the caveat that a recession was factored in, and it wasn't clear how to get out of it. If that January taught anything, it's that you can be right about the direction and still lose money. The market doesn't reward prophets. It rewards those who survive by moving backward.