The Ibex's Fall from 16,000 to 6,700: A Chronicle of Collapse

Chronicle of Panic on the Ibex 35: From 16,000 to 6,700

The Ibex 35 plummeted from 16,000 points to 6,700, and some meticulously documented every point of that fall in real-time, transaction by transaction, night after night. The statement sounds stark, yet the narrative itself offers nuance: there were thousand-point rallies, green days that hinted at recovery, and entire sessions spent awaiting US unemployment figures. However, the underlying trend throughout the years covered by this chronicle was singular. It began with a 1.21% drop and a -6.09% year-to-date cumulative loss, eventually transforming into a rollercoaster from which no one emerged unscathed. "The stock market is complicated, as complicated as the thousands of human beings who simultaneously dictate its fate," summarized one trader. The rest of the material supports this view.

The Collapse Nobody Wanted to See

At the end of what then seemed like a good year, the index hovered around 16,000. Shortly after, it lost the 14,500 support level, and nobody knew where the bottom was. In just three months, non-real estate stocks in the continuous market collapsed. The circulating list was devastating: Vueling -48%, Ercros and Avanzit -46%, Europac and Faes -43%, Adolfo Domínguez and Sol Meliá -38%, Unipapel and NH Hoteles -36%, Inditex -32%, Campofrío -31%, Abengoa -30%, Banco Guipuzcoano -28%, Vocento -28%. Out of the entire continuous market, barely ten companies surpassed the annual yield of a 5% deposit.

"It's easy to say, 40%, almost half of what was invested," calculated an investor. The average was around 20%. The 'poker aces' of the decline were the construction companies —Ferrovial, ACS, FCC, and Sacyr— while foreign capital seemed to be exiting the Spanish market faster than the rest of Europe. The complaint was widespread: the Ibex was falling much more than its European peers since the beginning of the year, and no one knew if it was a flight of foreign money or simple contagion.

The crash was measured by sectors. The credit crisis, oil at its peak, and countries beginning to nationalize reserves painted a picture that, on paper, turned every rebound into a trap. Some even ironically called for Zapatero to appear on television swearing that "Spain is doing well."

From the Detroit Rescue to the $880 Billion Plan

Soon, the narrative shifted from being solely Spanish. December 1, 2008, a day many marked as a turning point, yielded figures to remember: Morgan Stanley -23.05%, Citi -22.2%, Bank of America -20.92%, JPMorgan -17.5%, Goldman Sachs -16.75%, American Express -15.74%, Alcoa -13.48%, General Motors -12.4%, General Electric -9.73%. The Dow lost 7.7%, the S&P 8.9%, the Nasdaq 9%, and the Nikkei 6.35%.

Hearings in the Capitol to rescue the automotive industry were trinc almost live. Senators questioned CEOs about how they had traveled to Washington —the issue of private jets still stung— and how much money they requested. General Motors' response was clear: $4 billion now and another $4 billion in January. The ECB lowered interest rates by 50 basis points to 3.25%, and Germany reported industrial production of -4.6%, well below the expected -2.5%.

The automotive data did not help: Ford fell 32% in December and 20.2% for the full year, Toyota 37%, Honda 34.7%, GM 31.4%, and Chrysler 30%. Against this backdrop, the US stimulus plan of $880 billion was voted on with the feeling that it was too late. Meanwhile, the ECB injected up to $40 billion overnight into the interbank market, in addition to the same $40 billion from the previous day.

Gazelles, Lions, and Guano: The Language of a Community Trading Live

Amidst so many figures, that group developed its own jargon, impossible for outsiders to trinc. Gacelas (gazelles) were small investors, those trading without information from the big players. Leoncios or leones (lions) were the large funds, the information holders, who sold expensive stock before driving down the price. And guano was the ultimate destination of it all: the hole, the bottom, the place the index invariably headed when least expected. The stock market began to be called tortuguIbex (turtleIbex) or chulibex (cockyIbex), depending on the day's mood.

The explanation given by one of the veterans remains the best elementary economics lesson: the stock market is supply and demand, what is exchanged is money and paper, and money pushes the graph upwards while paper pushes it downwards. When no one wants to buy, the price plummets with hardly any shares traded; when no one wants to sell, it rises without exchanges. With this foundation, the wild swings ceased to be magic and became human mathematics.

Four Stocks That Moved Half the Index

There was a structural detail that repeated every time the index took a sharp turn: 43% of the Ibex was composed of two stocks, Santander and Telefónica, each representing approximately half of that percentage. With BBVA, Iberdrola, and Repsol, seven or eight stocks accounted for 75% of the index's price. This fueled a regular suspicion from a forum user: "The market will hold as long as the crisis doesn't affect the major banks, but if they catch a cold, what the Nikkei went through will be child's play."

Flow analysis reinforced this idea. When over 80% of Ibex stocks showed dominant selling from strong hands for more than five consecutive days, indices typically plummeted within a few sessions, even if misleading sideways movements or rallies were seen beforehand. The recurring conclusion was uncomfortable: the price of many stocks was sustained by weak money inflows, low volume, and an absence of 'sharks' involved. The perfect trap.

Fibonacci, Waves, and Lines of No Return

Technical analysis was rampant. A Fibonacci retracement from the December 31 highs to the day's lows indicated selling at the 38.2%. Applying that same level to the correction placed benchmarks at 962 points for the S&P, 2,554 for the Stoxx, and 10,420 for the Ibex. Some spoke of a dreaded Wave C that could take the selective index down to a mere 3,000, while others countered with a simple "patience will be scarce for some when the US unemployment claims are published."

The underlying discussion was almost philosophical. "The current market is totally manipulated. No system can predict anything with such manipulation," declared a veteran. Another took it to the extreme: the only reliable entry was when you obtained insider information directly from the manipulator. In the middle, a third argued that market movements anticipate the real economy, because those moving large sums have direct influence over it: if major businessmen start firing and halting investments, the crisis feeds itself.

Two Years Later, the Wound Was Still Open

The material pogre through 2009 and 2010. After the initial crash, the rebound came, which many swore was definitive, with the Ibex recovering from lows of 6,700 and a rally that brought hope back to portfolios. But the return of bailouts —first Greece, then the rest— turned the market upside down again. On February 4, 2010, the Ibex lost 5.94% in a single session, and rumors of a weekend Greek bailout became the new specter.

In parallel, money began to move towards gold and precious metals, and the idea that the financial system had become a gigantic virtual economy took hold strongly. One trader summarized his astonishment at how a macro data point could move the dollar exchange rate in seconds. No one fully knew where the money was going, and that uncertainty became the main underlying theme.

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If that group made anything clear, it's that predictions are sometimes met, systems are half right, and whoever claims to have found the definitive method is usually wrong the next day. With the Ibex looking at the line of no return, some expected 12,400 and others 9,500. The data remains undecided, and neither do those who have been involved for two years.