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Friday, July 17, 2009

Bovespa (Brazil) index chart pattern - July 16, '09

The last time I took a look at the Bovespa index chart pattern 3 months ago, the Brazilian index was looking a lot stronger than the BSE Sensex index. With this week's strong performance of the Sensex, I thought it may be worthwhile to have another look at the Bovespa index chart.

It wasn't surprising to find that the BSE Sensex chart (in red) is now outperforming the Brazil index (in blue). The Sensex has been superimposed on the Bovespa 6 months closing chart pattern for comparison - so the index levels are replaced by percentage levels:-

Bovespa_Jul1609

The two indices lock-stepped along till the middle of May '09. The election results in India was seen as a big positive by the stock market, and the big gap-up jump on May 18, '09 took the BSE Sensex index way above the Bovespa index. Notice how the Brazil index also moved up on May 18, '09 - when there was no euphoria due to election results.

What is more interesting is the way the two chart patterns behaved subsequently. Minus the gap, both have moved sideways with a downward bias, including the sharp rise during this week. Just goes to show that the two emerging markets are dancing to the same FII tune.

Let us look at the technicals. The ^BVSP spent a bit of time below its 50 day EMA, dragging the 20 day EMA down towards the medium term average. This week's up move (which seems to be continuing on Friday, July 17, '09 at the time of writing this post) has once again taken the index above all three moving averages.

The slow stochastic has bounced up sharply from the oversold zone and moved above the 50% level, indicating a trend change. A similar move last month proved to be a 'false' indication. Another example of why a single technical indicator is not to be relied upon.

The RSI gave a better signal, as it made a higher bottom while the index was making a lower one - a positive divergence. The MFI has started to move up after making two bottoms above the oversold region, but remains below the 50% level.

The MACD is still in the negative region - proving that it is a 'lagging' indicator - but is trying to move above its signal line. Volumes have picked up to support the up move.

Bottomline? The Bovespa (Brazil) index chart pattern shows that the recent up move may be getting stronger, as bears appear to have been trapped. Don't fight the trend - but keep booking partial profits.

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