Ibex 35 March 2012: The Expected Crash That Never Came

Ibex 35 in March 2012: the crash that didn't arrive

In March 2012, with the Ibex 35 closing February below its year-end close, half of the stock market was expecting a major crash. Shorts were prepared, targets were set at 7,600 points, and a head-and-shoulders pattern – the famous HCH – was said to be forming on weekly charts. The problem was that the index, stubbornly, resisted falling as predicted. The Ibex ended up approaching 8,420 points while short-sellers accumulated losses and long positions held on against expectations.

For short-term traders, the month was an exercise in poorly rewarded patience. Yet, technical signals, corporate news, and geopolitical rumors provided ample material to believe that something was about to break.

The Head-and-Shoulders That Divided the Market

The star pattern of March was the HCH. The dominant theory: the index was forming the head of a reversal pattern that, if well-formed, would lead to a textbook crash by October. The 'guanazo' (the crash), in the jargon of the time. Some placed the second shoulder at 1,150 points on the German futures; others argued that if the second shoulder surpassed the head, the pattern would be invalidated. When December saw prices exceed 1,250, some declared the pattern dead; others saw a series of impulses, not an HCH. The technical, unresolved discussion set the tone for the month.

End-of-quarter forecasts also failed. Some predicted the Ibex at 7,800 and the DAX at 5,560, betting the German index would hit the bottom of the quarterly channel. The result: the Ibex had risen 4% and the DAX 9% from those levels. The forecasts for the upper end of the quarterly channel were blown away, the same analysis admitted. The 'guanazo' that many expected seemed, at the very least, delayed.

There was no shortage of irony: if turning the chart around so much ended up deciphering the universe's dark matter, the HCH might as well have been an arm wave.

The Day of the 'Deaths': Drops of up to 6.8%

There was one session that was marked in red. The drops recorded in a single day:

• Sacyr: -6.8%
• Gamesa (GAM): -6.1%
• Abengoa (ABG): -6%
• Indra (IDR): -5.5%
• BBVA: -5.1%
• Arcelor: -5.1%
• Técnicas Reunidas (TRE): -4.5%
• Telefónica (TL5): -4.5%
• Santander (SAN): -4%

It was the day when the gazelles – those who buy when everything seems cheap – sold without hesitation, and the bargain hunters who had been holding longs since 8,250 saw their stops triggered. The Ibex lost 8,230 points at that time, and many traders began to talk about 8,120 as the penultimate brake before the abyss. The storm, however, stopped sooner than expected.

Some also attributed the drop to the lifting of short-selling restrictions. The response was blunt: the index falls because it has to fall, not because restrictions are lifted.

Iberdrola, Indra, and Gamesa: A Stock-by-Stock Breakdown

Day-to-day, individual stocks generated as much discussion as the indices. Iberdrola moved with an eye on 4.65 euros, with some convinced it would reach that level and others recalling the significant burden of cross-holdings on its capital. One analysis valued it at 5.1 euros, while purchases accumulated around 4.580-4.585.

Indra approached 10 euros, fueling the debate on whether it would face a third bearish impulse down to 8.70 or if 10 euros would act as resistance. Gamesa was a textbook headache: protection stops triggered at prices different from expected, partial order executions, and commissions eating up what little remained. They took Gamesa, commissions, and a bag of chips from me, summarized one trader.

Telefónica deserved a separate chapter for its divergence from the benchmark index: while the index was hitting highs, the telco was already trading at levels seen when the Ibex was at 7,500. This internal divergence, technicians warned, was the real sign of fragility.

The Rumor of a Coup in China That Moved Markets

Mid-month, a rumor circulated on Chinese websites and blogs that made currency traders tremble: an alleged coup d'état in China. With due caution, those who spread it acknowledged it was likely false, «but it's so widespread in the market that it could affect it». The dollar came under selling pressure within minutes, and several traders linked the movement to the unconfirmed news. There was no coup. The episode left an uncomfortable headline: in the markets, an unverified rumor moves prices just as much as a fact.

Sacyr Exits Lisbon and Merger Rumors Swirl Around La Caixa

Corporate headlines also made waves. Sacyr would cease trading on the Lisbon Stock Exchange on April 10th, after Manuel Manrique's company requested voluntary delisting from Euronext Lisbon, approved by the Portuguese regulator. The official reason: cost savings due to low trading volume of its shares, which barely moved.

In parallel, there was talk – unconfirmed – of a possible merger between La Caixa and Banca Cívica, to be announced "by Friday at the latest." And Bankia faced criticism: the bank's situation and its management were described as a court of urgent matters (a summary court). For the skeptics, a bitter memory remained: that of the "strongest financial system in the world" that the country had been sold a few years earlier.

Longs vs. Shorts: The Eternal Debate

One of the most frequent discussions of the month was the usual one: is it better to trade long with your own money or bet on the downside with leveraged products? Some argued that shorting involves paying interest and commissions, while going long uses your own capital and allows you to wait for opportunities, collecting dividends in the meantime. The counterargument was forceful: with CFDs from certain brokers, being long means paying daily financing margin; being short, it does not.

A third argument settled the debate: in this world, the only thing that brings peace of mind is a well-placed stop that caps the maximum loss. Everything else is psychological. And some recalled, without irony, that moving down carries more prestige than getting an upward move right.

The VIX, Elections, and the Triple Top

Towards the end of the month, with the index already approaching higher technical targets, analyses became more nuanced. They spoke of "laborious" corrections, with intermediate ups and downs, not vertical collapses. The underlying scenario was a potential triple top that, in the words of one trader, would be the largest ever seen if the index jumped towards 1,550 points. The reason given: it was an election year, and that never fails.

The close brought its own surprise: a VIX spike during the auction that some interpreted as a signal that the next downturn was brewing. Others dismissed it as a trap to allow for a slight rise the next day, bring in latecomers, and then crush them.

In the end, the figures insisted on contradicting intuition. With the Ibex holding above 8,400, the great March crash failed to materialize. The most pessimistic targets – 7,600, 8,120 – were not met. Those who had loaded shorts at 8,420 saw the market continue to prove them wrong. And while some closed with losses and others with profits, no one knew if the 'guanazo' would arrive in April, in October, or if it would remain forever in the drawer of scares that never happen.