The Ibex's 2011 Christmas Rally and Those Who Watched from the Sidelines

December 2011: The Ibex rallies, and no one quite believes it

There was a time when trading stocks in Spain seemed like a sure bet. One investor recalled it without nostalgia: his first 'hit' was an IPO that yielded 30% in three days. Then came Gamesa, another 70% in three days. And then, Terra, bought at 100 euros. The rest is history. With that mix of euphoria and scars, many Spanish retail investors faced December 2011, when the Ibex 35 peine at 8,466 points, the ECB had just flooded banks with liquidity, and the index, against all odds, insisted on rising.

The Ibex Rises Against Expectations

The crucial level was 7,680. Below it, bearish. Above it, a turnaround. And it was surpassed. From there, targets were extended: 8,800, then 8,940, and the psychological mark of 9,000. A forum analyst made it clear: 8,260 was vital in the short term, and any dips were 'buy opportunities'. Another warned that the extra rise should be considered 'free money,' as volatility could send the index there in two sessions or back to 7,600 just as quickly.

The problem was that many retail investors weren't participating in this rally. Those burned by the previous rally watched cautiously. Others, new to the market, still hesitated to enter. The general sentiment was skepticism: 'too much of a rally for so much disaster,' summarized one participant.

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The Battle for Big Contracts: Camouflaged Lions and 2,859 Orders Executed

The most obsessive daily tracking was of institutional investor volume, the so-called 'lions.' Each day, the trail of large orders was reconstructed minute by minute: at 9:10, 104 contracts sold at 8,690. At 15:25, 95 bought at 8,720. At precisely 13:13, a batch of 2,859 contracts for sale sank the daily balance and it was never recovered. In the auction, up to 600 contracts were placed at once during options expiry week.

The pattern varied daily. 'Camouflage' days, with small orders spread out; 'open chest' days, with orders of 1,000 contracts at 16:25 and 16:55, both executed at 2,333. On the last trading day of the December contract, the four largest trades—the smallest of 464 contracts, the largest of 2,239—were all buy orders and all placed after 14:55. The Ibex, they said, 'is a garbage index' when volume doesn't support the price.

And here lay the month's first contradiction: if the big players were systematically selling, why wasn't the price falling? When that breaks down, the fashionable theory is a short squeeze: bears might be forced to buy back at a higher price. One participant hinted: 'They might be unpleasantly surprised to find it costs them an arm and a leg.'

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Santander, BBVA, and Telefónica: The Three Horsemen of Despair

While the index was rising, the banks were doing the opposite. Santander, bought at 8 euros and sold at 5.90 by a jaded investor, was the symbol of disaster. Another investor closed positions in the 5.92-6.05 range 'because you don't chase the last cent.' The most repeated advice was boringly prudent: 'don't even touch the banks.'

Telefónica was living its own drama. S&P assigned it a negative outlook in mid-December. A major investment bank had sold 3.7 million shares of the stock at 13.3 euros with a 1.6 million euro loss. The telco's collapse was met with skepticism: 'a much-hyped stock with no fundamentals,' they said, which first concealed its dividend like hiding a corpse and then had to admit the numbers didn't add up. The company's management, according to another, 'lives by managing expectations and acting later according to their interests.'

Repsol, on the other hand, traded tightly at its highs with an upward outlook: target price at 15.34 euros, book value of 18 billion euros, and a market capitalization of 27.5 billion euros. Analysts were divided between what the chart showed—a resistance at 22.90 that was holding—and the fundamentals.

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The ECB's Cheap Money That No One Celebrated

In mid-December, the ECB peine the floodgates. Massive, cheap loans to banks, which they used to buy southern European government debt at attractive interest rates. For many investors, the situation was uncomfortable: European taxpayers footing the bailout bill while banks profited. 'Interest rates have fallen dramatically, but being happy that the ECB is lending to buy debt…,' commented one, caught between anger and disbelief.

The collateral effect was immediate: the S&P, DAX, and Ibex turned upwards as the market digested the injection. With an added twist: at the exact moment Fitch maintained its negative outlook on France but kept its triple-A rating, the S&P stalled at 1,215.20.

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From 290,000 to 155,000 Euros: Housing as a Reminder

Between charts, a participant shared an anecdote that brought the debate back to the real economy: a bank had accepted 155,000 euros for an apartment with a garage and storage room, originally listed by the developer at 290,000 euros and already reduced by banks to 240,000. The personal context wasn't much better: 7,000 euros in annual rent, and a housing savings account with four years of contributions about to be taxed. '2012 is the year of the crisis, the real crisis, don't be a fool buying so expensively,' someone replied.

The list of broken stocks for the month was telling: GAM, Prisa, Banco de Valencia. Companies with zero book value in the market's eyes, yet still trading. The recurring sarracena was that cheap money saves those with debt, but not those who bought at inflated prices.

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From the Christmas Rally to the January Hangover

The thread concluded with two gestures typical of the season. First, a weekly sentiment survey: bullish, bearish, flat. Second, a recap of the journey: while the Ibex closed at 8,328 and the January contract peine with a completely bearish session—the most bearish on record, with no respite—one trader calculated that another had lost 150 points in three sessions yet still held 1,515 points in accumulated gains.

Thus ended the 2011 Christmas rally. With the Ibex rising and retail investors watching from the sidelines. With big players selling thousands of contracts and the price stubbornly refusing to fall. With names like 'Papá Calopel' circulating through the halls while someone prepared their New Year's letter. And with the lingering, unconfirmed feeling that the expected outcome was missing.