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Rebounding Brazil Bounces On Cue

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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More from Dana Lyons, JLFMI and My401kPro.

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.

Rebounding Brazil Bounces On Cue was originally published on The Lyons Share

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Brazilian Stocks Testing Important Breakout Level

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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More from Dana Lyons, JLFMI and My401kPro.

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.

[jlfmi]

Brazilian Stocks Trying To Clear Major Hurdle

As the Olympics were kicking off, the Brazilian Bovespa scored a key breakout; with the Games wrapped up, the index is testing that breakout point.

“Test Week” continues today with a look at a country that has been in the global spotlight lately, though not because of its stock market. Brazil has been the center of attention recently, having just wrapped up hosting duties for the Olympics. However, its stock market has also been a very intriguing one to us, even earning our designation as “The Most Interesting Chart In The World” not too long ago. And it is presently in a very interesting spot again. For, just as we have noted this week with Germany and REITs, the Brazilian Bovespa is testing a very important level right now.

In mid-July, the Bovespa was on a tear, having just broken above a 2-year Down trendline. With the Olympics approaching, the index had climbed some 34% just since the post-Brexit lows at the end of June. In a post on July 19, however, we noted that the Bovespa was running into a serious potential obstacle in the form of a 6-year Down trendline, stemming from the 2010 highs.

After consolidating just below the trendline for about 2 weeks, the Bovespa broke above it in early August -- on the day before the Olympic opening ceremony. The index would proceed to follow through on the breakout as the 2-week event unfolded, tacking on another 4% or so. As the games drew to a close, though, the rally petered out. And on Monday, the day after the closing ceremonies, the Bovespa dropped more than 2%. And today, it found itself in the vicinity of its trendline breakout of a couple weeks ago.

Now, we don’t know if the coinciding Olympic Games had anything to do with the performance of Brazilian stocks over the past month. And we don’t care. All we care about is what is happening in the markets. And this test, as the chart indicates, could be a very important event for the Bovespa in determining its fate in the near to intermediate-term future.

Like the past few posts, the takeaway is straightforward. If the Bovespa is able to maintain its ground above the 6-year trendline, then the benefit of the doubt goes to the bulls. If, however, prices break back down through the trendline, then a major failed breakout could be at hand. That could lead to significant potential downside in the near-term.

And while it pays only to watch the reaction of prices around this level, one factor that leaves us skeptical about the index’s ability to hold the trendline is the nature of its breakout in the first place. As we have said many times, when the breakout of a significant level is being threatened, we prefer to see a deliberate approach by prices, initially. That is, we like to see prices consolidate below the significant level for some time prior to attempting a breakout. The more times that prices can bump up against the level, the more it can whittle away at its resistance. Thus, a breakout after an extended consolidation typically stands a better chance of maintaining its breakout and of exhibiting meaningful follow through.

In the case of the Bovespa, the 2-week consolidation below a 6-year trendline doesn’t really instill much confidence in its potential to maintain the breakout. Yes, only the price action will tell us if the breakout will be successful or not. However, analyzing the character of the breakout can be useful in determining the odds. And in this case, we have serious reservations about Brazil’s chances of successfully and permanently clearing this hurdle, at least for now.

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More from Dana Lyons, JLFMI and My401kPro.

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.

[jlfmi]

Brazil Stock Rally Facing Stiff Test

Up sharply off of its January lows, Brazil’s Bovespa Stock Index is challenging the down trendline stemming from its 2010 highs.

With the Rio Olympics fast approaching, speculation on the competitions is in full swing (e.g., will Brazil be able finish its venues in time or who will win the fight between Brazil and the Zika virus?). Outside of those questions -- and the athletic competitions -- there is another serious test underway in Brazil. After suffering a major (false, in hindsight) breakdown in January, the Brazilian stock market has been on a tear. If there was a global stock market competition for 2016, Brazil’s Bovespa would certainly be in medal contention, having climbed some 50% off its January lows. Presently, however, the post-January rally may be facing its stiffest hurdle yet.

If we rewind a bit first, we see that the Bovespa has been on a wild ride since the turn of the millennium. After an epic 750% rally from 2002 to 2008, the index got sliced by 60% in just 6 months, from May-October of 2008. It was able to hold in the vicinity of the 61.8% Fibonacci Retracement of the 2002-2008 rally, however. From there, it would recover 99% of its 2008 losses over the subsequent 2 years.

Since 2010, the Bovespa has been in a gradually down-sloping channel, albeit with substantive swings within the range. Since 2013, the range has been contained at its lower bound near the 61.8% Fibonacci Retracement of the 2008-2010 rally. Back in September, we dubbed the index “The Most Interesting Chart In The World”, as the major 5-year support was pitted against a potential head-&-shoulders pattern. Thus, the Bovespa seemed to be destined for a substantial move, up or down, based on the resolution of this battle.

As it turns out, big moves in both directions would unfold. First, at the beginning of the year, the Bovespa broke its support/Fibonacci Line/Neckline, leading to a 16% plunge in 3 weeks. That sharp and swift move lower would prove to be all the downside the index would see, however. By early March, the index had recovered the entire loss, prompting another “Most Interesting...” post as the Bovespa was challenging its breakdown area. We now know that the breakdown was a “false” one as it has spurred a further rally of almost 30%.

That brings us to the present where we find the Bovespa running into the Down trendline that has served as the upper bound of the aforementioned post-2010 down-sloping channel.

So will the trendline continue to serve as resistance on the Bovespa? Or will the index manage to continue its rally up through the line? Only time will tell. It certainly would not surprise to see the trendline at least act as temporary resistance as the Bovespa consolidates its recent gains. However, considering the magnitude of the false breakdown, it would not surprise us either to see it eventually break out above the trendline and put in a further extension to the rally. In fact, it is possible that a new cyclical bull market in Brazil has only just begun.

In the meantime, we’ll focus on the index’s reaction to the trendline here. And like early in the year, we may possibly see some shakeout in both directions before the dust settles. Thus, it may be more of a marathon than a sprint and, as such, it may take some time before the gold medal is awarded here.

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More from Dana Lyons, JLFMI and My401kPro.

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.

[mitchzacks]

Are the Rio Olympics in Danger?

It’s difficult to imagine Brazil in a more compromised position than it is today. And, with the Olympics just several weeks away, Brazil seems far from ready to host. With a leader that’s essentially been removed from office (Dilma Rousseff), implications of corruption at the highest levels of government, a recessionary economy, high inflation and a frustrated populace, the Olympics could not have come at a worse time. But, it doesn’t end there. Just this week, 100 prominent physicians, bioethicists and scientists from around the world wrote a letter to Director-General of the World Health Organization to exert pressure on Olympic authorities to move the Olympics from Rio de Janeiro or delay the Games because of public health concerns over the Zika virus. The spreading of the virus is a major concern, and with tourists expected from dozens of countries the risk of outbreak and global spread is acute. This is a story to watch for the sheer drama of it all.

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Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals. This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Zacks Investment Management, Inc. is not engaged in rendering legal, tax, accounting or other professional services. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney- client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

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IMPEACHED: Brazil’s President Faces Trial

Impeached! – well, sort of. After a 20-hour long deliberation in the Brazilian Senate, it was decided that President Dilma Rouseff would be subject to an impeachment trial, during which she must step down as president. After she was removed from the presidential palace, she delivered two impassioned speeches defending herself and calling the trial decision a “coup” and an “injustice.” At the heart of the matter is whether she had any involvement in the multi-million dollar kickback scheme at the state-run oil company, Petrobras, where she served as chairwoman. More recently, there have been questions of whether she broke budgetary laws by borrowing from state banks to cover a shortfall in the deficit and to boost social programs ahead of her 2014 re-election bid. Brazil’s economy has been mired in recession for two years now and it stands to lose plenty more cash with the summer 2016 Olympic Games. To think, the Olympics could be going on while the former president is on trial for corruption and potential impeachment. Things have been better in Brazil, but maybe this is the shakeup they need to clean up corruption and pave the way for more open market growth.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals. This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Zacks Investment Management, Inc. is not engaged in rendering legal, tax, accounting or other professional services. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney- client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

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Brazil’s Bovespa Is Once Again...The Most Interesting Chart In The World

After resolving its former “most interesting” chart status with a massive breakdown in January, Brazil’s Bovespa is back testing that breakdown level in an equally interesting development.

On September 4 of last year, we labeled the Brazilian Bovespa stock index “The Most Interesting Chart In The World”. You’ll recall that, at the time, global equity markets were knee deep in one of those “markets in turmoil” phases, to borrow a term from alarmist financial television. Thus, to be granted such a title, the Bovespa must have been a real doozy. Well, we’re chart geeks, but we thought it was special.

Specifically, at the time the Bovespa was involved in an epic bull/bear battle, pitting the following chart forces against one another:

In The Bull Corner: the 61.8% Fibonacci Retracement of the Bovespa’s 2008-2010 rally around 46,150, which the index held a half dozen times over the prior half decade.

In The Bear Corner: a potential massive head-&-shoulder pattern formed over the prior 2 years, with the the 61.8% Fibonacci touches serving as the neckline.

Which scenario would be victorious in this epic, and interesting, battle? We had no idea. As I told many people: “I’m confident it is going to move BIG…I just don’t know which way yet.” The irony was that, in the post’s aftermath, the Bovespa trodded along the line of bull/bear demarcation for nearly 4 months, refusing to reveal its grand decision. Thus, for 4 months, the Bovespa transformed into essentially the least interesting chart in the world.

Then things got interesting again. On the first day of 2016, the Bovespa broke, and broke hard as we suspected it eventually would. It lost 3% on that first day and wouldn’t look back. By 3 weeks in, it was down over 14% for the year. Things looked hopeless for the Bovespa.

Then another interesting thing happened. The index bounced -- and has continued to bounce up through today’s action. Now, just about 5 weeks after hitting its -14% YTD rock bottom, the Brazilian Bovespa is actually up for the year.

This is where it gets “most interesting chart in the world” type of interesting again. The Bovespa is now testing the lower bounds of its massive head-&-shoulders/Fibonacci breakdown level that marked the chart’s “most interesting” status in the first place.

Here it is up close:

What makes the chart so interesting now? It is essentially setting up a similar scenario as in September, i.e., a likely very large move -- in either direction. The previous setup involved either a substantial up-move off of massive, multi-year support -- or a substantial drop should that support fail to hold, with the added pressure of a multi-year head-&-shoulders pattern. Well, the head-&-shoulders scenario won out, as we mentioned, leading to that immediate 14% plunge to begin the year.

Now, the scenario revolves around the confirmation, or rejection, of that massive head-&-shoulders breakdown. Either of the 2 outcomes could, again, have monumental consequences and entail substantial moves as a result.

A confirmation of the breakdown (i.e,, this area acts as resistance) should lead to another large decline, and very likely lower lows than those seen in January. Conversely, a rejection of the breakdown (i.e., price rises above the breakdown zone), would constitute a false breakdown. False breakdowns often lead to up moves every bit as powerful as the potential breakdown would have been. Considering the magnitude of support and the scale of the head-&-shoulders formation that was broken, should it turn out to be a false breakdown, the potential upside probably could not be overstated.

So what level should we key on to instruct us as to which scenario wins? No level should ever be taken as gospel, so we are considering a range of potential levels that could encompass the Bovespa’s “test” of its breakdown. That range would essentially extend from former lateral support around 44,000, which the index is testing today, up to the diagonal extension of the hypothetical head-&-shoulders neckline, currently just above 47,000. The reaction at this area could set the tone of the Brazilian stock market for the next several months, or possibly even years to come.

We don’t always focus on Brazilian stocks; but when we do, we prefer dos posiblementes grandes.

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More from Dana Lyons, JLFMI and My401kPro.

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.

[mitchzacks]

Carnival Might be the Only Thing Going for Brazil Right Now

Standard & Poor’s downgraded Brazil’s credit status to junk for the first time since 2008, warning it could lower the grade even further in the coming months. A flailing leadership in Dilma Rousseff (whose approval rating has dipped into single digits amidst the Petrobras scandal) and failure to aptly balance a budget inspired the rating cut to BB+. 

Now, Brazil is between a rock and a hard place juggling high inflation with the need to stimulate the economy. Low commodities prices and a modestly growing global economy don’t help. If Brazil can’t get their economic house in order soon, it could experience massive cash outflows from pension funds which will only make matters worse. It’s not near the top of the list of attractive Emerging Markets right now.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Zacks Investment Management, Inc. is not engaged in rendering legal, tax, accounting or other professional services. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney- client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.