The 12-month re-emergence of the Brazilian stock market continues apace.
In a December 23 post, we mentioned that our vote for 2016 global stock market of the year went to Brazil. Here is the back story reason why, as laid out in that post:
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.
The reason for our December post was to note that the Bovespa was in the midst of a pullback that had brought it down to test the post-2010 Down trendline which it had overcome in July. This was near the 56,000 level on the index. As it has done for the past 12 months, the Bovespa responded superbly, bouncing that very day. It hasn’t looked back since and yesterday, it surpassed its October-November peak. That 1-month 15% bounce has the Bovespa at a 5-year high.
Now this isn’t one of those “great risk/return entry point” type of posts. That was the December post. This one is merely to point out that the action in the Brazilian market that earned it market of the year for us last year continues. And while the “easy”, mean-reversion money has been made, there is still big, long-term potential in Brazil after its 8-year consolidation. There are a few significant hurdles left to overcome, including the Bovespa’s all-time high near 74,000, not to mention the 78.6% Fibonacci Retracement of the 2010-2016 decline which happens to be right here near the 65,500 level.
However, should the Brazilian market’s rebound continue apace, an eventual new high and new leg of advance is a reasonable expectation.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.