Ibex 35 in July 2012: From Panic to Rebound in One Session

July 2012: The Ibex Gambled Everything in a Single Session

What did it take for the Ibex 35 to stop falling in July 2012? Less than you might think. The blue-chip index's futures were down 6%, as reported on the forum, with one participant anticipating a risk premium that could reach 700 or 800 points. The debate wasn't whether a bailout would happen, but when. Amidst the panic, a speech by Mario Draghi, which the prevailing view in the thread suggested didn't involve bond purchases, was enough to send the index soaring like a rocket in a matter of hours.

The Draghi Rebound That Cost Nothing

On July 26th, the ECB president's intervention provided a floor for a market that had been searching for one for weeks. The dominant interpretation at the time was that there were no bond purchases or commitments – just lip service. The most common diagnosis spoke of kicking the can down the road, buying time rather than money. Nevertheless, the reaction was immediate: the index went from hitting lows to surging with a violence that surprised many.

The discrepancy was significant. For some, the speech was a magician's trick that solved nothing fundamental. For others, the bottom was in, and a sustained rebound was coming. Both perspectives held true on the same day, even as the chart remained in the red.

What Peine to Telefónica's Dividend?

Amidst the turmoil came the news nobody wanted to read: Telefónica was canceling its dividend. For an investor base accustomed to receiving this payment like a salary, the blow was far from abstract. The company ceased to be the usual safe haven. Some took advantage of the dip to enter: one forum user reported buying 500 shares at 8.85 euros during the storm, planning to cover the position later with shorts on the index itself.

The episode left an uncomfortable picture: the stock that served as a refuge for small Spanish investors stopped paying. And there was no plan B in sight.

The Levels Everyone Was Watching

The technical chart that summer was a series of broken lines. According to one forum user's analysis, the Ibex had risen to 7,200 points and then retreated to 6,600, approximately half of the previous rise, where many expected a rebound. It didn't happen. The index fell to 6,350-6,400, considered the last line of defense, and even that didn't hold. The final move to the lows resulted in a rocket-like rebound that returned the selective index to 6,300 in a single leg.

With the chart at those levels, the prevailing question was whether we would see 5,900 points again before the year's end. Nobody knew at the time.

Why Was the Ibex Moving More Than the DAX?

Among less experienced investors, a reasonable question arose: while the Ibex and the Italian index were oscillating with extreme violence, the German DAX lagged behind and even underperformed the French CAC. One forum user suggested a different starting point as a possible explanation: Spain and Italy arrived at the event much more oversold, with a more beaten-down floor and, therefore, more room for a textbook rebound.

The detail matters because it dismantles a comfortable assumption: not all European indices suffered equally from the sovereign debt crisis. The periphery moved more because it had more at stake.

Short-Selling Ban and the Portfolio Hedging Trick

When the regulator banned short selling, one forum user's reaction was the opposite of what was expected: buying shares only to immediately initiate shorts on the index and cover the position. The mechanism, plainly put, takes advantage of the fact that the restriction affects the uncovered sale of securities but does not prevent taking bearish positions on the selective index through other means.

The lesson in market mechanics is simple, and many retail investors were unaware of it: banning shorts doesn't eliminate downward pressure; it merely shifts it to another product.

And between charts and graphs, the anecdote that best captured the month's climate: a forum user recounted being fined for driving at 80 km/h on a 70 km/h road, and the officer quipping if he thought he deserved the penalty. Exactly like the market. A fine for going too fast on a road where everyone believes they are driving at the correct estimulante ilegal.