Ibex 35 in May 2011: Not Even Bin Laden Moved the Index

May 2011: The Ibex 35 That Didn't Budge, Even with Bin Laden Dead

How can it be explained that the Spanish index remained stuck between 10,100 and 11,200 points while half the world celebrated new highs? The month began with a figure in the air: more chance of dropping to 9,999 or rising to 11,500? The question wasn't rhetorical. With Wall Street setting records almost daily and the German DAX pushing forward, the chulibex lagged behind, absorbing declines more readily than gains.

The trigger for the first session was twofold: the death of Bin Laden and Santander's dividend, which subtracted points from the index purely for technical effect. Not even that moved it.

The Index That Rises Late and Falls Early

Compared to the S&P and DAX, the Ibex showed asymmetric behavior that traders quickly highlighted: it struggled to join rallies and, conversely, always led the declines. While the Nikkei recovered pre-earthquake levels and the Americans hit new highs, here the talk was of a "sideways market of sideways markets."

The Ibex reached 10,460 points when the most optimistic scenario projected 10,700 and, with luck, 11,200. The levels of 10,126 and 10,196 served as tactical references for intraday trades. Nothing broke through clearly.

Greece, Italy, and the Spread No One Watched

The noise came from abroad. An intervention in Greece was considered imminent, and the focus shifted to Italy: the Italian bond spread against the German Bund climbed to 187 points, its highest level since January 11. That figure, more than any speech, moved positions.

In parallel, the collapse of Bank of Ireland, nearly 25%, after announcing its intention to force losses of up to 90% on subordinated debt —with the Irish state as a shareholder— served as a bitter reminder of what could happen to any peripheral country. An uncomfortable idea weighed on Spain: that the country was not Greece and there were "unpleasant surprises yet to be discovered."

The Machines, Dark Pools, and the Big Dog

Part of the analysis suggested that the market was no longer driven by news, but by large operators. The recurring argument: it's a game where the institutional operator decides the direction of things, and the small players only try to guess it. The recommendation, when doubt crept in, was to quickly exit the position.

There were sessions where algorithmic alert systems triggered simultaneously. Significant operations were detected in dark pools whose counterparty in the public market was suspiciously obvious: an operator draining liquidity over two or three sessions. High-frequency trading (HFT) machines took their share of blame, although on dead days —with the big players closed— their absence was more noticeable: there were sessions where the index barely moved and shorts peine in the morning closed with minimal losses.

The 22-M Elections and Markets Voting

The municipal and regional elections on May 22 set the tone. Country risk was already tense before, and some argued it had been contained until the electoral date. The majority reading, however, was colder: markets don't vote for ideologies, they react to any change in the status quo because money is conservative and antiestéticars losing contracts.

The macro data didn't help either: the Chicago PMI fell from 67.6 to 56.6, its worst reading since November 2009, which some interpreted directly as a nod to a new round of stimulus. The usual paradox: bad data, strong stock market.

Diversify, or How to Prepare for the Worst

With the antiestéticar of a bailout looming, a good part of the month moved towards defensive strategies. There was talk of diversifying into metals, capital goods, and land, keeping only enough cash in the bank for unforeseen events. Some admitted to buying hundreds of silver coins and moving cash from intervened entities to a rural bank. The logic, half joking, half serious: to sleep soundly.

Against this, another current insisted on not getting bogged down by the index: entering stocks with their own trajectory, with tight stops, and ignoring what the S&P or the German Bund were doing —which, incidentally, broke upwards after consolidating, a sign that money was still seeking refuge—.

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In the end, the month's summary was given by an ordinary session: the index licking [-2%] without anyone quite knowing why, and the only memorable rise belonging to a specific stock that went from 6.50 euros. An entire month discussing the 10,700 level, and the market ended up doing what markets always do: nothing that had been announced.