Ibex 35 in May 2014: Dividends, Penny Stocks, and 25% VAT

May 2014: Ibex Pays Dividends as VAT Looms at 25%

On May 1, 2014, the Spanish stock market peine the month with a contradiction that summed up the mood of half the country: the Ibex 35 was generously distributing dividends, while the day's top economic news was that VAT could rise to 25% after the elections. The headline circulated sarcastically among retail investors, who had been hearing about recovery for months while watching their bank accounts. The underlying message, between the lines, was the usual: everyone fend for themselves with whatever dividend they could get.

Sony's figures didn't help either: the Japanese company cut its operating profit forecast by more than two-thirds. The first day of the month already provided just enough fuel for skepticism.

Sell in May? The Ibex Level That Decides Everything

The Ibex 35 started May hovering around 10,400 points, trinc a rally that had pushed indicators very high. The most common scenario was a slightly bearish sideways trend, with a first support zone between 10,034 and 10,050 and a bullish target above 11,123. Intermediate levels being discussed ranged from 10,100 to 10,600.

There are two schools of thought, and neither is yielding. One argues that the rally has been building for months, with volume signaled long ago, and that those who entered with potential should have held on tight. The other counters that there has been neither a reversal nor distribution, but that entering at these prices is an act of faith. The recurring phrase is the classic curse: sell in May and go away. No one can agree on whether that still holds true or if, precisely this year, the market has decided to ignore it.

Dividends Everywhere: The Gift That Isn't a Gift

May is dividend month, and that covers many embarrassments. Santander, BME, and several others were distributing. The recurring joke was precise: today they're paying out what they don't have. The dividend increases the shareholder's cash and decreases the stock price proportionally; the net effect, for those looking at their account at the end of the month, is an accounting illusion. But psychologically, it supports the stock. And it helps prevent selling.

The perfect illustration came from a family case. Parents had held Santander shares for seven years and that same week had exactly the same amount of money they had invested. Seven years. Of inflation, commissions, and dashed hopes. Their son's question—whether to sell now or wait until the end of May—summarized the relationship of thousands of savers with the big banks: trapped without realizing it, waiting for a day that never comes.

Poisoned Penny Stocks: Cheap, Small, and Explosive

If the Ibex was the shop window, the real movements were in the small-cap stocks. Natra, Biosearch, Amper, Montebalito, Realia, Ezentis. The so-called chicharros (penny stocks), those with minuscule market capitalization that can double in a session or plummet without remedy.

The most repeated warning was clear: anyone who buys a penny stock hoping others will take the fall is highly likely to be the one who falls. Volumes would suddenly appear, someone would trigger the sell order, and the small investor would be too late. Natra was the textbook example: 1.79-1.82 was mentioned as a key zone, with the possibility of it dropping to 1.73 or less if the RSI dictated. Ezentis announced a capital increase of 5 new shares for every 11 rights, at 0.7 euros each. The money, once again, came out of the shareholder's pocket.

ANR: The American Coal Company Fighting for Survival

One stock dominated the debate throughout the month: Alpha Natural Resources, ANR, an American coal and gas company. First-quarter results surprised positively—a loss of 0.25 dollars per share compared to estimates that pointed to double that—and the company had increased its cash reserves to 2.1 billion dollars. With the stock having fallen 50% in four months, the market's reaction was the big question.

Optimism had an argument: the price of natural gas in the United States had skyrocketed, and if production fell, coal would regain demand as an alternative. Pessimism had another: the market was pricing in a negative environment for U.S. coal until 2017, and ANR didn't have the money to hold out that long. Any additional financing would come at usurious rates or via a 50% capital increase. The company was already capitalized at less than 800 million dollars. Grandchildren will have money... or colored pictures, one summed up bitterly.

Draghi, the ECB, and the Bubble No One Wants to See

The appointment of the month had a name: the ECB meeting. All the pieces had been in place for weeks, and the market awaited the central bank president like someone awaiting a verdict. The scenario had three doors: an immediate stimulus, a postponement to June, or the option someone dubbed the bummer, that nothing would happen then or later. The last would have forced major investors to seek another catalyst.

In parallel, the ECB itself warned of a bubble and a sharp and disorderly correction in financial markets. The logical question—if the central bank warns, why isn't anyone selling?—had an answer: as long as cheap money keeps flowing, no one wants to get off the train. Cycles, the most veteran traders said, had been in an upward phase for five years, and pullbacks are part of the playbook. The problem is, no one knows when the pullback will start.

Credit That Doesn't Return and the Santander That Won't Start

Against the official narrative of recovery, data from the Bank of Spain told a different story: credit wasn't returning. Favorable data were presented and unfavorable data ignored, thus maintaining the fiction of exiting the crisis. Banks, meanwhile, were repositioning their assets. BBVA was negotiating its exit from Portugal and putting 83 branches up for sale, a sign that things weren't exactly celebratory. Italy, for its part, announced it would include prostitution and drug trafficking in its GDP calculation. Anything to avoid admitting that the real economy was still limping.

There were also those who quantified what happens when money doesn't circulate. Credit doesn't return because money is antiestéticarful, hides, and can't be found, and in a bear market, it takes refuge or disappears entirely due to leverage. The Japanese debt chart—more than a trillion yen above the trillion mark—was shared as a reminder that this could last longer than anyone can bear.

Ferrovial, Iberdrola, and the Mania of Not Using Stop-Losses

In terms of operations, two stocks generated discussion. Ferrovial started the month with a downward gap, and some withdrew their buy orders at 15.50, anticipating further falls, with an eye on levels below 15.40. Iberdrola, which had tracked the index well, began showing signs of exhaustion: two sessions without trinc the Ibex and declining volumes. Those closely watching it considered exiting if it didn't break 5.25.

And regarding stop-losses, there was total disagreement. Some argue that a stop-loss isn't mandatory and prefer to ride out corrections. Others retort that not setting one, or setting it too high, is the quickest way to turn a profit into a loss. What peine with a stock that fell more than 5% in two out of three sessions served to fuel the debate: those who held on got out in the green by a miracle, and they knew it.

The Dividend Hat and Other Anecdotes

Not everything was analysis. Amidst the fervor, a shareholder recounted receiving a gift by certified mail for delegating his vote: a checkered rain hat that, according to him, was only suitable for carnivals. Another day I'll take a picture with Santander's sports bag, he joked. The anecdote perfectly describes the relationship of the retail investor with big banks: they give you a gift, you sign, and someone else makes the decisions.

There was also room for the human element. A participant announced the birth of his second daughter after a complicated pregnancy and jokingly asked for his stocks to go up. The stock market has these things: between charts and graphs, life sneaks in.

Closing: 14,000, 9,610, or the Sideways That Never Ends

The month closed without drama or glory. The Ibex held in the middle of the ascending channel, dividends were collected, penny stocks moved, and the question of whether to sell in May remained, once again, without a unanimous answer. Some had dreamed of 14,000 points, while others warned of a pullback to 9,610. Both scenarios were possible within the same month.

The only certainty, with the Bank of Spain's data in hand, was that credit recovery had still not appeared, VAT could rise to 25% after the elections, and the stock market, meanwhile, was rising. With these ingredients, does optimism make sense, or is it simply the final stretch before someone turns off the music?