Ibex 35 in October 2010: The Prophecy That Ended at 700 Points

The Ibex 35 That Was Supposed to Crash in October: A Range of Barely 700 Points

On October 15, 2010, the third Friday of the month, Ibex 35 futures expired, and the index remained exactly where it had been for weeks: within a range of barely 700 points between its highest and lowest points. The investment community, which had been predicting a crash all month, was left wanting. No collapse, no catastrophe. A soporific market that refused to make up its mind.

The month began with futures on the rise —+54 pips at the open— and with the old belief that the first few days of the month are almost always bullish. On top of this foundation of expectations, a prophecy emerged that no one signed but everyone watched. The Ibex 35, meanwhile, did its usual thing: nothing.

Why Was October 2010 Expected to "Crash"?

The bearish thesis had its logic. The S&P 500 had been hovering around 1,180 points for months, the VIX showed no signs of panic, and so-called smart money had its largest bearish positioning in five years. With these ingredients, anyone would expect a serious correction.

The problem is that expecting and happening are two different things. The index spent 36 sessions without breaking anything, trapped between touched supports and respected resistances. The stochastic was starting to turn, the MACD threatened a bearish crossover, and the resistance at 10,900 held firm. Everything pointed south. Nothing moved.

What the Volume of Large Investors Reveals

Volume analysis was the central entertainment of the month. In the first hour of one session, sales of 300, 285, and 426 contracts were detected in the Ibex futures. At 9:06 AM, 9:35 AM, 9:56 AM. Then, absolute silence: institutional traders placed their orders and left the market on autopilot.

On another day, a single purchase exceeding 700 contracts set the tone from the opening bell. However, the pattern repeated: activity concentrated at the open and mid-afternoon, with long stretches of boredom. The more volume, the more clarity; and the clarity pointed to declines.

Gazelles and Lions: How a Stampede Forms

The narrative repeats with almost mechanical precision. Strong hands sell unhurriedly when the market is euphoric; small investors buy that last leg up. When the final surge exhausts itself, the price reverses, and the small investors, scared, sell off simultaneously. The stampede does the rest. The result is a fall that no one fully decided upon and that everyone fueled.

In this scenario, buying a stock that has fallen a lot and is cheap is a bad business. The calculation supporting the bearish thesis is simple: there is no one defenseless if the seller does so calmly. The risk is borne by the buyer convinced that the price cannot go any lower.

GAM, Gamesa, and the "Penny Stocks" in the Portfolio

Outside the main index, the month left its marks. GAM plummeted without anyone quite knowing what had peine to it, and the usual suspicion arose: when they let it rest, it would rise again with the usual players already in. Market noise, not certainties.

Gamesa, on the other hand, provided one of those anecdotes that sting. The stock even led the gains on the Ibex and the Stoxx. A trader placed a buy order at 4.624. The day's low was 4.64. The order never executed. The Sánchez-Ramade family, meanwhile, acquired 1% of Iberdrola for more than 600 million near the electric company's all-time highs. The big players also buy high.

The Balance Sheet: October Broke Nothing

At the end of the month, the summary fit in one line: a dull and simplistic month, with a range of barely 700 pips, without the long-announced breakout ever occurring. The collapse that some saw around the corner turned out to be a false alarm.

The puzzling fact is chronological. In the preceding months, the Ibex had risen from 11,350 to 12,230 without anyone batting an eye. When everyone expected a correction, the index simply stopped. The prophecy failed not due to excessive decline, but due to boredom.