Radar Perene / Articles / episode

The leader yields the microphone — the rotation hidden at the top of December 2020

Episode

The extreme

The house's three gauges rarely point to the same place. At the close of 2020, they did — all at the upper extreme of appetite, with no counterweight. Perene risk pinned against the ceiling, mood at extreme optimism, intermarket in strong risk-on. But the unanimity was the easy part to read. Beneath it, the leader of the year began to yield the microphone: the cyclical theme, which had dominated the market, ran out of breath in the very month sentiment nailed its peak. In numbers: the Perene Risk Index from 58.4 to 95.7, Ânima from 64.3 to 65.8, and the Cyclical/Non-Cyclical ratio retreating from z 1.82 to 1.09 — the largest move on the board. Selic at 2.0% a year, the dollar at R$ 5.15.

What happened next

The rotation December began carried on. In March 2021, the stretch in commodities loosened (z from 2.61 to 1.85) and defensives reacted — Utilities/IBOV moved from −1.76 to −0.93, the largest advance on the board. In June, the primacy of raw materials ran out of breath for good (Commodities/IBOV from 1.50 to 1.18), while the cyclical axis, which December had seen cool off, drew back toward zero. The gauges, glued to the top in December, pulled back: perene risk gave back sixty points in a single month. And the record closed the account — matured at six months, December 2020 was classified a hit, with a return of 7.1%, near the 7.7% median.

What did not happen

Extreme optimism was not a top signal. Anyone reading the unanimity of the three gauges at the peak as the eve of a fall would have been wrong: six months later, the return was positive. Nor did the banks' breather become an immediate trend — Finance/IBOV, which had hinted at a recovery in December, returned to the absolute bottom of the board in March (z of −2.12). And cyclical leadership did not collapse: it merely lost momentum, without crossing below zero. The redistribution was slow, not a blowout.

The honest verdict

Reading internal rotation at a mood top signaled cycle maturity, not imminent risk — and, this time, maturity still left room for gain: the return came. But the hit rests on a shallow base, just six comparable episodes. The lesson is more sober than the win: when mood nails the top and the leader begins to swap on the inside, the signal is one of transition, not of an end. Price can keep rising while the hierarchy shifts beneath it.

Continue reading: The end of the commodities' reign · Cyclicals vs. defensives — who leads each regime · The money that fled inward →

The Radar reads these regimes every day. See today's reading →

Characters: Structure (intermarket)