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The cycle split in half: April 2014 and the end of buying blind

Episode

The extreme

March bought everything. In thirty days, April undid half of it — but it was not just any pullback. It was a sorting. Domestic money stopped buying the market and started buying addresses: it kept the cyclicals tied to consumption and homegrown credit, and dropped the raw materials that depend on appetite abroad. The same cycle, two opposite destinies. In numbers: the Perene Risk Index gave back more than half of March's momentum, from 100.0 to 46.2, back to neutral; the ratio between cyclicals and defensives jumped from z −0.17 to +0.92, the largest advance in the structure; and raw materials against the broad index sank from −0.77 to −2.10, the lower extreme of the reading. Selic at 11.0% a year, the dollar at R$ 2.2328 — the real still firm.

What happened next

The sorting was not a prelude to a rally; it was the start of a regime of choice that lasted months. In July 2014 immediate appetite collapsed once more into aversion territory (Perene Risk from 62.9 to 23.7), while the structure kept rewarding the banks (Finance against the broad index from z +0.64 to +1.39). In October the money came back — and came back to the same addresses: Finance moved from −0.13 to +0.71, the largest shift of the month. Only in April 2015 did the arrangement of safe havens finally come undone, with the premium of raw materials in reais evaporating (z from 1.46 to 0.13) and the Selic already at 13.25% a year. The market never bought everything again.

What did not happen

The leadership of the cyclicals was not confidence in the economy. Anyone who read the jump of z +0.92 as a clean bet on activity got it wrong: the appetite that sustained it crumbled in July, and the Selic did not stop rising. Nor did commodities stay at the bottom forever — they recovered relative ground in the very next months. And the neutral of 46.2 was not an alarm: it sounded like moderation, not a warning. The warning came later.

The honest verdict

April got the phenomenon right — the market had stopped buying everything and turned to choosing — and the selectivity did indeed persist. But choosing was not a sign of a rally; it was a symptom of a cycle that was deteriorating. The reading of moderation described the present well and stayed silent about the future: the aversion was three months away, and the engine did not see it coming.

Continue reading: The euphoria at the top — March 2014 · Cyclicals vs. defensives: who leads each regime · Commodities in reais →

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Characters: Structure (intermarket) · Flow (risk appetite) · Mood · Dollar