Sunday, April 19, 2009

Bovespa (Brazil) Chart Pattern - Apr 17, 2009

I had a look at the Bovespa chart pattern on Apr 7, '09 - when it had paused just below its 200 day EMA, much like what the Sensex chart pattern is doing now.

Let us have a look at the 3 months bar chart pattern of the Bovespa index to see what is different:-


(Please right-click on the image above and open it in a new tab or window for a better view.)

Last week, the Sensex crossed the 200 day EMA hurdle three days in a row, but only managed a close above it for a day. The Bovespa showed no such hesitation and after piercing the long-term average, closed 6 straight trading days above it.

Is that a clear indication of a reversal in trend from bear to bull market? Not yet. In spite of the 6 days spent above the 200 day EMA, the upward thrust seems to have lost momentum as the Bovespa pauses for breath.

Why do I say that? The answer lies in the technical indicators. While the slow stochastics has remained in the over bought zone for quite sometime - as it often does during bullish periods, the MACD and RSI has flattened out and the ROC is showing signs of moving down from an over bought region. Volume has also tapered off a bit, and that doesn't support an upward move.

Does it mean that the rally is over? May be not. Both the 20 day EMA and 50 day EMA are moving up sharply and may cross the 200 day EMA. That will confirm the change of trend.

Bottomline? Next week's trading needs to be watched closely. Like the index, investors should also pause a bit before deciding on the next course of action.

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