Ibex 35: July 2013 Stuck Between 7,500 and 8,000

The Ibex 35 spent July 2013 stuck between 7,500 and 8,000

The Ibex 35 did not crash in July 2013. Nor did it take off. It remained trapped in a range of barely 500 points, punishing equally those who went long and those who insisted on seeking a collapse. In a trendless market, money was not made by those who predicted the direction —no one was clear about it— but by those who guessed which way the next swing would come. The index had just lost the 8,000 mark and spent four weeks debating whether it was a floor or the last station before the abyss.

That is the snapshot of the month: a market without a compass, with American indices hitting, according to some forum users, all-time highs while the Spanish one settled for not breaking below 7,500. And one figure summarizes almost everything: the debt the Treasury kept issuing.

A 500-point range: neither 8,000 nor 7,500

July began with the Ibex just below 8,000, having lost the round figure and hovering around 7,930. The dominant idea was that this zone would hold as the bottom of the sideways trend and that, from there, anyone could go long with a tight stop. It didn't happen.

The Portuguese crisis consumed a good part of the month. One of the most circulated analyses attributed the last 80 points of the downward trend to the situation in Portugal, a movement that theoretically diverted the index from its original configuration. The quarter peine with that "mini black swan" coloring the screens red.

Technical analysis didn't help one bit. Long-term trend? Down. Medium-term? Sideways. Short-term? Down again. With that starting point, the only real consensus was that the market was setting a trap. The reference levels being considered —floor around 7,570, rebounds limited to 7,954-7,970, clear sell-off above 8,600— outlined such a narrow corridor that moving within it required the reflexes of a gambler.

Sacyr, Gamesa, and the shorts war

If the index wasn't providing joy, some specific stocks were. Sacyr became the protagonist of the second half of the month. The stock, which carried the stigma of being cannon fodder for short funds, rebounded to close around 2.95 euros after trading in the 2.77 area. Some bought at 2.77, some waited for the opening gap to be covered, some bought at 2.83, and some watched as the price slipped away within minutes.

The underlying debate was different, and not minor: to what extent could a group of small investors "make life difficult" for large funds. One current argued that a handful of retail traders could inconvenience a fund during a buyback, because acquiring 10% of the capital is a slow and expensive operation. The counter-argument was equally firm: five people don't move a stock; it takes months and millions. The example that settled the discussion —or fueled it— was Volkswagen and its historic short squeeze, the episode where short sellers got trapped and had to buy at any price.

And there was Gamesa, which went from trading near one euro to around 4.50 euros, with a rebound that no one dared to call "real." Also FCC, which gained +13% overnight. And the utilities, which took the worst hit: REE lost 7.88% in a single session. The stock market rewards and punishes almost randomly when there is no trend.

---

The debt that the rebound doesn't hide

While the Ibex moved sideways, attention shifted to public money. The figures being discussed were uncomfortable: net debt issued by the Treasury in the first half of 2013 increased by 29.104 million euros. Emissions reached 50.955 million, compared to 21.851 in the same period of 2012. In other words: in six months, more than double the amount had been issued compared to the previous year.

The conclusion drawn was bitter. The country was sustained by public debt, and some had been warning for years that this debt was, in practice, unpayable. The system remained standing because no one —creditors included— was interested in it collapsing. Spain issuing debt at that rate while the Ibex stagnated was, for many, proof that the market was not pricing in recovery, but mere survival.

The detail that was repeated most often was that of companies staying afloat by refinancing. Highly indebted companies that cannot return to the market, balance sheets that only balance if the tap remains open. And a phrase that hung over the entire month: sovereign debt is uncollectible unless the ruling class changes overnight. In other words, no.

---

Wall Street at highs, Spain looking in the rearview mirror

While Europe wrestled with the risk premium, Wall Street was hitting, according to the forum users trinc those indices, all-time highs. And the Ibex looked on enviously. The most repeated thesis was equally simple and cynical. If the S&P 500 holds, the European Union holds; if the S&P turns, Spain notices it before anyone else. "Without the Yanks, the Germans are nobody," summarized one of the most repeated analyses of the month.

That dependence had its own play. If the US market turned around, the bet was Germany, not Spain. Seeking refuge in the very place that pushes the rest. In a month when the Ibex offered no signal, looking at the S&P became the best available indicator.

There were also those who argued that the Americans would rally. They would do anything to achieve it, even if it meant taking half the world down with them. And with that certainty, eyes remained fixed on a screen that was not in Madrid.

---

The Santiago accident that stopped the debate

There comes a point when the conversation stops being a stock market conversation. In July 2013, the Santiago de Compostela train derailment interrupted the debate. It did so abruptly. The discussion shifted to the track safety systems: the section where the accident occurred did not have the ERTMS (European Rail Traffic Management System), the European system that prevents exceeding the maximum estimulante ilegal or running a stop signal, but the conventional ASFA (Automatic Train Protection system), which only acts at specific points and alerts the driver to confirm the signal.

Suddenly, no one was talking about shorts or Gamesa. Condolence messages and indignation arrived, along with an uncomfortable question that was repeated over and over: how much does a safety system cost, and how much does a life cost. The comparison with the Valencia metro accident years ago, and with public spending on landmark buildings versus the lack of investment in safety, appeared several times. No one felt like looking at charts anymore.

---

How to trade when the market has no trend

In a market like that, the strategy was not about choosing sides, but about risk management. The most useful advice of the month didn't say what to buy, but how not to go bust. The stop at the entry point and moving that stop as the price rose were the golden rule: enter a stock, set an exit below, and as soon as the trade advanced, move the stop to cover yourself. The underlying message was clear: this could go to hell at any moment, and anyone who didn't accept that possibility shouldn't be trading.

Some advocated for more sophisticated instruments for a wide range, like spreads, which play on hitting two levels simultaneously. And some simply admitted publicly that they had failed. A review of their own mistakes listed three: buying Iberdrola at 5 in a highly indebted company, underestimating Pescanova's liquidity, and misreading the balance sheet of a third stock. Learning through hard knocks and for all to see.

There was also a lesson on paper. When the market pushes upwards without convincing anyone, there is usually someone placing large positions. As soon as the price falls, the small investor sells out of antiestéticar; as it rises, they buy out of greed. In the midst of these two impulses, the big players collect what the nervous ones release.

---

A month that left the range open

With the floor set around 7,500 and the ceiling near 8,000, July 2013's Ibex left an uncomfortable feeling. American indices were rising, Spanish debt was growing, and here, in the middle, a handful of traders were dividing a meager 500-point range. The question of what the Ibex was doing with the economy in intensive care and debt at highs had no answer on any screen.

Short sellers argued that the collapse was still pending. Bulls claimed that the bottom had already been hit and a rebound was due. The month's data allowed for either thesis to be supported. If the American trend held, the Ibex would eventually break the range upwards; if it turned, it would be the first to pay the price. The bet in July, deep down, didn't depend on the Ibex. It depended on the S&P and a risk premium that no one could fully clear.