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The month without a leader — when the index swallows the hierarchy

Episode

The extreme

There are months when the trading floor has a protagonist: one sector that pulls, another that gives way, and the observer is left to note the hierarchy. October 2011 had none. The four largest moves of the month were all declines against the broad index — commodities, banks, real estate funds and utilities all lost ground at the same time. When everything gives way against the index, it is the index that is being bought: demand chose the whole room, not the chair. And domestic appetite confirmed it, firming up vigorously even without a sector leader. In numbers: the Perene Risk Index from 50.7 to 79.0, the firmest reading of risk-taking in the period; the Commodities/IBOV ratio from z 0.09 to −1.77 (the largest move, Δ −1.86); Financials −1.39, IFIX −1.17 and Utilities −1.07. Selic at 11.5%, the dollar at R$ 1.77.

What happened next

The absence of a leader did not last. In January 2012, three months on, the hierarchy reappeared with a name: money went back to buying the economy that turns with the cycle, and the Cyclical/Non-Cyclical ratio jumped from its depressed floor to near neutrality (Δ +1.77), the largest displacement of the month. Domestic appetite went to the ceiling — Perene Risk at 100.0. Then the leader changed address: in April 2012, real estate funds took the front (IFIX/IBOV from z 0.19 to 1.55), the refuge now dressed as income. The protagonist's chair, empty in October, was contested once more.

What did not happen

Everything falling against the index looked like weakness — it was not. Appetite at 79.0 showed the opposite: the broad index was being bought, not sold. Anyone reading the flattening as aversion would have gotten the signal wrong. And the disagreement between the two gauges — appetite firm, intermarket sinking — did not resolve quickly. The intermarket structure deepened even further before any reconciliation, reaching 10.83 in April 2012, while appetite touched the ceiling. The two clocks did not strike together for months.

The honest verdict

The month without a leader marked the absence of a protagonist, not the absence of demand. The reading was right to register the disagreement, but the question it left behind — which gauge was reading the real temperature — was only answered months later. And the answer was: both, at different times.

Continue reading: When the thermometers disagree · The end of the reign of commodities · The retreat to concrete →

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