Ibex 35 Sideways as New Tax Hits on New Year's Eve

Ibex Closed 2011 Sideways as Treasury Prepared 2012 Tax Hike

Why does a market that spends all day going up and down end the year exactly where it started? December 2011 saw the Ibex locked in a channel between 8,362 and 8,466 points, with support at 8,322-8,224 and a bullish breakout requiring a close above 8,566-8,630 to be credible. Neither peine. The Spanish index meandered for weeks in a narrow range while the German DAX moved between 5,792 and 5,848 points, and the S&P 500 futures tested the 1,238-1,248 zone.

Volume data told the same old story: low trading days, million-euro orders placed at odd hours, and a closing auction that decided the entire day. Against this backdrop, the real news wasn't on the chart. It was in the BOE.

What the Treasury Increased on December 31, 2011

The Official State Gazette (BOE) of December 31, 2011, published on page 53, an additional thirty-fifth provision with a long name and a short consequence: a supplementary levy on the state's net tax quota applicable during the 2012 and 2013 tax years. The fine print mattered less than the calendar.

Here, an interesting technical discussion arose. One side argued that the increase would affect the tax return filed in May 2012; another recalled that withholding taxes are advance payments and that most of 2011's had already been made. The conclusion reached by participants, lacking the full text, was that the new rates for 2012 would be reflected in the 2013 tax return. No retroactive surprises, except for the housing deduction.

The numbers, according to a calculation circulating in the thread, broke down the impact: someone earning €8,000 from stocks and deposits would pay about €200 more; someone earning €50,000—a figure considered normal for those living off the market—would face about €2,400 in additional taxes.

Layoffs Not Shown on Charts

While the indices drew channels, the thread discussed how the real economy was struggling. According to one participant, Santander's wholesale banking division was preparing to lay off between 180 and 200 people from an area of about 400 employees. The reason: tough prospects for 2012 after closing 2011 with 96% of its budget met. The idea was to start the year clean.

Another message, from a user who had previously shared other rumors, claimed that Bankia had granted a €780 million loan to the Generalitat de Catalunya (Catalan regional government), not yet signed but considered certain.

Where to Put Money When the Index Isn't Deciding

Strategies being considered in that range were varied. One group bet on pure sideways trading after the Ibex's upward trend was lost, with the S&P 500 watching the 1,243-point level and the German Bund remaining firm as a safe haven. The first signs of shorts in the S&P were present, though unconfirmed.

Other messages worked the details. Repsol was trading near all-time highs after activating second-degree structures. Endesa was heading for €16.3 if it broke €16. Abengoa showed a double top at 17.95-97 with bearish divergences on MACD and stochastic, and below 15.7, the scenario peine up. EADS drew a weekly channel that invited waiting for a breakout, targeting the width of the channel itself.

And if volatility was needed, there was the euro. The EUR/USD cross was trading around 1.30-1.308, with distant targets pointing to the 1.24 zone after respecting the 61.8% Fibonacci retracement almost to the tick.

Can a Market Be So Robotic That Holidays Matter Little?

That was the hypothesis posed by a forum user. With most institutional traders on vacation, trading would fall into the hands of algorithms capable of moving the Ibex futures with a few orders. According to volume tracking in the thread, days with significant movements were explained by a single order of 131 contracts at 13:30 that dragged the index, or by sales of 112 contracts placed at 16:55 with the market already thin.

The temptation to trade that noise is high. The cost, too: €30 monthly commissions that are only offset by four trades, and stops that, as one participant commented, are triggered before the price reverses.

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The Ibex started 2012 in the same range it left 2011, with the closing auction buying 200 contracts and the reading that the opening gap could be bullish. The most skeptical had already done their math: buying at the absolute low would have yielded a 55% return by year-end; staying in the middle scenario, a meager 10%.