Christmas Trees at Rodrigo de Freitas Lagoon – Rio de Janeiro, Brazil
Brazil’s Bovespa stock index is testing the Down trendline stemming from its 2010 top, which it broke above earlier this year.
Brazil gets our vote for the stock market of the year for 2016. The Brazilian Bovespa entered the year in the throes of a 5-year bear market that had sliced over 40% off of the index’s 2010 all-time highs. During the global equity weakness at the beginning of the year, the Bovespa dropped below 3-year support levels, plummeting another 15% in just 3 weeks. However, as quickly as the Bovespa dropped, it bounced back just as fast.
By the beginning of March, it was back up testing its breakdown level, prompting our post labeling the Bovespa “The Most Interesting Chart In The World”. It seemed to us that the index would either fail at the breakdown level, initiating its next leg down – or reclaim the breakdown level setting up a massive false breakdown. It turned out to be a massive false breakdown.
After reclaiming the key breakdown level, the Bovespa continued its rally in torrid fashion. By July, just in time for the Rio Olympics, the Bovespa arrived to challenge the Down trendline stemming from its 2010 top and connecting the highs in 2012 and 2014. The index succeeded in overcoming the trendline and furthered its 2016 advance until the beginning of November. When all was said and done, the Bovespa ended up rallying about 75% off of its January low.
Since early November, the index has pulled back, which is neither a surprise nor unhealthy. At this point, the Bovespa finds itself back testing the post-2010 Down trendline that it overcame in July, around the 56,000 level.
Just below that level, near 55,000 sits 2 important Fibonacci Retracement levels as well: the 38.2% from its January low and the 61.8% from its June interim low.
So this level should be pretty important support in perpetuating Brazil’s post-January rally. If it fails, it doesn’t necessarily mean that Brazil’s long-term bear to bull market reversal is dead. However, the less giveback the better for the fortunes of the Brazilian market. At a minimum, the Bovespa should at least muster a decent, if temporary, bounce off of this level.
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