IBEX 35 October 2011: Greek haircut and a floor no one signed

October 2011: IBEX battles for the floor as Greece faces haircut

October 2011 was the month the IBEX 35 climbed while a senior official from Angela Merkel's party announced Greece was bankrupt. The paradox has a twist: the market had been pricing in the worst for months, and with antiestéticar at its peak, even bad news served as an excuse to rebound. The index started the month defending the 8,650 points level and closed it debating whether it could hold 8,920, with Bankia newly incorporated into the selective index and Fitch cutting the rating of six Spanish banks.

The Greek haircut the market had already factored in

The scenario being discussed wasn't just any default: a haircut on Greek debt was being considered between 50% and 60%. Michael Fuchs, a German MP and president of his country's SME association, stated it bluntly. The Athens Stock Exchange responded with a 4.51% slump, and specific entities saw their values drop by up to 20% in a single session, anticipating the losses that awaited them.

The dominant interpretation was that the blow was already priced in. It would be wrapped, they said, in panic and a lot of theater: beyond the initial scare, the haircut was a known gift and a prime opportunity to mark medium-term lows. Countering this thesis was an uncomfortable argument: if the haircut exceeded 50%, European banks were not prepared. Two months isn't enough time for that, even if someone had anticipated it.

The 8,920 points: the resistance no one could break

The month's technical map changed almost daily. The 8,400-8,650 zone was identified as a buying area as long as 8,920 wasn't surpassed, a level from which the index reversed more than once. Once past that mark, the objective would be to confidently attack 9,000; the most ambitious scenario spoke of a run up to 9,700.

Banks set their own ceilings: 6.40 euros for BBVA and 6.11 for Santander. In parallel, reversal patterns were detected activating in stocks like Repsol, Iberdrola, and Telefónica, all in the form of an inverted head and shoulders, with a pull-back included. If the banks had trinc suit, the signal would have been considered definitive. They didn't entirely.

Across the Atlantic, the S&P 500 was the benchmark, fighting to close above 1,230 and having turned 1,210 into resistance drawn with the day's two highs. When the American index pulled back, the IBEX had no room to sustain its own. And when the VIX exited its two-week compression, stops were triggered rapidly.

Foreign dividends, Tax Agency, and the CFD shortcut

Money wasn't just played on the chart. Several long-term portfolio participants struggled with the taxation of international dividends, especially German ones. The most common conclusion: sell the week before the payout and buy back afterward, because the withholding tax is deducted from the stock's value, and the taxman takes a cut along the way.

Some recounted that in the Valencia Tax Agency office, they were handed a relic from the past, with dividends still counted in German marks. Others pointed to shortcuts: Contracts for Difference (CFDs) allow dividends to be collected while only paying tax on capital gains, provided the daily settlement is accepted as a hidden cost. The only clear rule is that the Tax Agency collects before the shareholder sees the money.

The leverage trap: ruin in a week

The month's harshest episode was a wiped-out account in just seven days. A novice investor, shorting FCC, Telecinco, and Gamesa, incurred significant losses and confessed to being practically ruined. The collective response was harsh and useful: the problem wasn't the market, it was the position size.

Three errors were repeated in the diagnosis. Indecision in setting entry and exit prices; disproportionate leverage, with losses of 2,000 euros on the first day; and returning to the same stock in the opposite direction to recover. The most common conclusion was that of the biker: you have to get back on the horse as soon as possible, because if the blow affects your next trade, antiestéticar is already deciding for you.

Adding to this was the suspicion that the broker plays with an advantage. Someone closed a short position on the DAX with a stop at 6,144 and saw a spike to 6,158 wipe out their order while other charts didn't register that movement. Fifty euros in losses, yes, but the doubt about who sets the prices when the broker is a market maker remained.

Why was the IBEX rising against the news?

Because the market doesn't rise with the news, it rises with expectations. The most insightful diagnosis of the month suggested that the common sense of 2009—putting savings into short positions because the stock market could only keep falling—was the worst possible roadmap. What matters is the chart; everything else, including informational noise, can be used as contrarian sentiment.

Hence the theory of the despair-driven slump: you have to finish squeezing the shorts, take their money, and only when the majority gives up will the real rally appear. The absence of what they called lions was detected: without large visible buyers, sessions concluded with low volume, doubts, and a total lack of direction.

Lions, gazelles, and jungle jargon

Trading at that time was described with zoological metaphors: large institutional investors were lions, and retail investors who entered late and exited at the worst moment were gazelles. In that context, the absence of gazelles within the market was interpreted as a signal of a long-term floor. No one knows who remains when everyone leaves.

Between sessions, a distinct desk subculture emerged: configurations of six screens connected to a single graphics card, steel stands to hold the monitor, and sessions that extended until the American market closed. Someone even announced, without further argument, a 3% drop for the next day. Others archived images of their newly assembled equipment like trophies.

That material coincided with widespread fatigue towards financial products. It was summarized by a repeated idea: the stock market had lost so much of its economic component that if you don't look at the quotes daily, it's better to forget about it. Volatility, they said, was killing the golden goose.

The context that didn't appear on the charts

While the IBEX battled for 8,900, Sony hit 24-year lows, and Arcelor moved with a beta of 1.08, meaning it was more volatile than the index due to its cyclical nature. The correlation with the euro-dollar exchange rate was debated without agreement: for some, it explained almost everything; for others, it was just one more variable in a market trinc the US lead.

Bankia also appeared, debuting in the selective index amidst jokes, and the price of oil pressured the scenario of an American recession. Everything added up, and everything pointed in opposite directions depending on the day of the week.

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The last data point of the month is also the most eloquent: with the S&P flirting with 1,230 and the IBEX stuck below 8,920, no one signed the floor. Some considered it confirmed with a pull-back; others warned of the worst possible bull trap. The index remained where the debate stood: in doubt. What if the floor was just a pause before the next bearish leg?