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The end of 2010: the gauge at 100, the lenders heading out

Episode

The extreme

There is one number that showed up just once that year-end: 100.0. In December 2010, the intermarket reading nailed the absolute ceiling of the scale — risk appetite maxed out, with no apparent counterweight. But anyone watching only the ceiling missed the essential thing. That same month, the leadership that had been organizing the market since September — the banks — was walking off. The audience gave a standing ovation at the very moment the lead actor left the stage. In numbers: intermarket climbed from 78.98 to 100.0, while the Financials/IBOV ratio collapsed from a z of 2.21 to 0.48 (Δ −1.73), the largest single drop of the month, and the cyclical axis crossed to −1.31. The Perene Risk Index, more cautious, stood at 63.7 — neutral. The gap between 100 and 63.7 was the warning.

What happened next

The ceiling did not hold. Three months later, in March 2011, the gauge that had nailed 100 was at 31.56 — moderate risk-off —, with capital running to utilities (Utilities/IBOV at 2.89) and the banks still at the bottom (Financials/IBOV at −0.81). In June there was a breather: Financials/IBOV left the infirmary, from −0.67 to −0.04, almost back to balance. But the relief was brief. Twelve months after the ceiling, in December 2011, the banks had sunk to −1.39 — deeper than in December 2010 —, intermarket remained in reduced risk (30.22) and money was paying dearly for shelter, with Utilities/IBOV at 2.24. The confidence of December 2010 did not carry across 2011.

What did not happen

The 100.0 was not the starting line of a rally. It was the highest point the surface gauge would touch for many months — from there, it only went down. And the bank leadership did not come back: the June flicker did not turn into recovery; by the end of 2011 the banks were more battered than when they began heading out. The maximum number announced no strength at all.

The honest verdict

The engine did not predict the 2011 decline. But, in the month of the ceiling, it registered that the 100.0 was hollow: the aggregate was shouting while the structure was coming undone, and the gap to the more cautious domestic index was laid bare. A gauge at the ceiling measures the enthusiasm of the room, not the health of those on stage. When the maximum number coincides with the exit of whoever was in charge, the ceiling tends to be the end of an act — not the opening.

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