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July's meeting — when the money stopped running and confidence caught up (Jul/2018)

Episode

The extreme

For three months the money ran ahead of conviction. Capital was racing; confidence lagged behind, stuck at the bottom of the scale, like someone who doesn't believe their own luck. In July, the two finally crossed — coming from opposite ends. Flow lost its hurry and mood took the biggest step of the cycle, the two touching at the midpoint of the road. In numbers: the Perene Risk Index fell from 93.6 to 67.3, returning from open appetite to neutral, while Ânima jumped from 13.2 to 40.0. The bet on cyclicals compressed from 2.11 to 1.07 deviations. The dollar closed at R$ 3.8288.

What happened next

July asked a question it couldn't answer: a pause to catch its breath, or the first sign of fatigue? October answered on the side of the party. The bet on cyclicals, which seemed to be cooling, surged — the Cyclical/Non-Cyclical ratio went from 1.15 to 4.23, one of the most extreme readings in the series, and the banks crossed from negative territory into leadership (Finance/IBOV from z -1.52 to 1.37). Perene risk returned to the top, from 44.8 to 92.8. But confidence didn't follow: Ânima stood at 61.1, modest, while capital was already running again. July's meeting lasted a month.

What did not happen

The reconciliation didn't hold. The two gauges that struck together in July did not stay in sync: in October, capital surged once more ahead of faith. The hurry hadn't ended either — it came back with force. And the cyclicals did not settle above the average, as July seemed to suggest; they stretched to the rare z of 4.23. In January 2019, mood exploded into extreme optimism (Ânima 87.6), but what led the composition was the defensive corner, the utilities. Flow and faith went on telling different stories.

The honest verdict

July read a pause and admitted it couldn't tell breath from fatigue — and the honesty was the right call. It was breath: the party came back in October. But the meeting between the money and confidence proved fragile. When the two cross at the midpoint of the road, coming from opposite ends, it doesn't mean they'll walk together from there on. They usually just switch sides.

Continue reading: Capital before confidence · The convergence from the optimistic side · How long mood takes to catch flow →

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Characters: Flow (risk appetite)