Ibex 35 in October 2011: 4% rally amid Greece turmoil

October 2011: Ibex 35 rallies as Greece plays with fire

The Ibex 35 closed October 2011 with a rally that left screens painted green. In just a few sessions, the SP rose from 1,080 to 1,282 points, the DAX recovered to 6,230, and daily gains of 4% became the norm. All this with soaring unemployment, a tightening risk premium, and a word no one wanted to utter: recession. The market was rising, the real economy wasn't. And anyone who didn't understand that gap was doomed to be wrong.

The rally that left more than a few glued to their screens

That upward trend caught many off guard. With the SP at 1,282 and the Ibex attacking 8,970, a sense of chaos prevailed: gains came relentlessly, with no one able to justify them on fundamentals. "It's not going to go up 4% every day for no reason," warned one of the most repeated analyses, convinced there was more to gain in the short term than the long term.

Some argued that going long at that moment meant buying already expensive assets, while others maintained that institutional money continued to bet on equities despite the antiestéticar. Volume figures supported the latter, although the murmur of an imminent correction never ceased.

The levels the Ibex 35 was playing with

The technical map was clear. The S&P 500 had 1,220 as a rebound reference and 1,260 as a serious resistance, with 1,187 marking the 50% Fibonacci level. The DAX should not drop below 5,970 without causing panic. And the Ibex, with 8,800 in its sights, could falter if the German index turned around.

In terms of specific stocks, Banco Santander resisted breaking above 6.12 euros, and until it did, the advice was not to touch it. Telefónica and Repsol appeared as dividend refuges, while Carrefour had already achieved a 16% rise with a target of 19.00 euros thanks to a well-measured double bottom.

MF Global: the first serious victim of the debt crisis

MF Global's bankruptcy was the other major protagonist. The firm filed for Chapter 11, which implies restructuring liabilities with haircuts rather than a pure liquidation, the truly dangerous scenario that Lehman faced. We were talking about one of the 22 primary dealers operating directly with the Federal Reserve, not just any boutique.

The market's reaction was lukewarm, and that raised all suspicions. "There's something hidden, for sure," was repeatedly said in comments, with a warning of caution for the next session. The episode left many unable to close positions and served as a reminder that debt crises don't announce themselves when they bite.

The Greek referendum and the CDS that won't pay

The announcement of a referendum in Greece on the bailout added fuel to the fire. The dominant interpretation was that citizens would vote no, tired of austerity, and that with a no, there would be no haircut because the debtor wouldn't accept it. This would once again strain risk premiums and send CDS soaring.

The underlying problem: if governments force haircuts, the insurance that should compensate investors becomes void. The credibility of the CDS market was shaken, and with it, the appetite for peripheral debt. Part of the analysis then demanded an upward revision of all premiums.

The BUND and the contradiction no one resolved

With the BUND at the 61% Fibonacci level, an uncomfortable divergence emerged: when the German bond traded at the level where the DAX closed, the German index was at 5,500 points. Money, therefore, continued to bet on equities despite everything. The question was how long it would last.

Amid the noise, some celebrated a perfect day: nearly 16,000 euros in profit in a single day, with the repeated warning that the market always demands back what it gives. Another, more sober message, summarized the situation without embellishment and earned general recognition.

As of this discussion, the Ibex closed the month of October with the pants down for anyone who had turned too soon. The sideways trend, anticipated as the most likely scenario, remained unresolved. No one could accurately say whether the next move would be up or down.