Bovespa Analysis January 2015 (D,M)
Created on Thursday, 01 January 2015 01:09
Written by Austin Galt
The Brazillian stock index, the Bovespa, had a terrible month in December so let’s quickly have a recap using the monthly chart.
BOVESPA MONTHLY CHART
The lower indicators all provide clear evidence of the weak position of this market.
The Relative Strength Indicator (RSI) is trending down and in weak territory with plenty of further downside on offer. The bears would be licking their lips in anticipation.
The Stochastic indicator is solidly trending down and looking bearish.
The Moving Average Convergence Divergence (MACD) indicator has just made a bearish crossover so things really do appear ominous for this index.
The Parabolic Stop and Reverse (PSAR) indicator has a bearish bias as evidenced by the dots being above price.
However, despite all these bearish overtones, the short term does look to provide some relief in the form of a rally.
The Bollinger Bands show price pulling up just short of the lower band. Price now looks to set to consolidate around the middle band before resuming the downtrend. That’s how I see it anyway.
This alone seems like flimsy evidence for expecting a rally. What else?
I have drawn a green highlighted circle at the top of the December candle. This is the level where price capitulated down. Just as price often corrects to the level where price embarked on a parabolic move higher, so too does price rally to the level where the capitulation began.
In this case, price capitulated from the get-go in December. The month opened at 54719 and I am looking for price to rally back to this level before resuming the downtrend with full force. Considering the Bovespa last closed at 50007, price rallying back to around this level would mean a move up of just over 9%.
Considering the trend is down, price should take more time to rally to this level than the time it took to drop. So perhaps 2 months to get back to where it dropped 1 month ago seems plausible. Let’s see.
I still feel some more detail is needed so let’s also have a look at the daily chart.
BOVESPA DAILY CHART
A bear trend pattern of lower lows and lower highs is obvious.
We can see the green highlighted circle which shows the candle for the first day in December. It shows price dropping like a stone from the word go. It’s only a small clue as to where price may rally to and definitely not the be all and end all.
The Bollinger bands show price currently trading above the middle band. Perhaps after some consolidation around this level price will make its way to the upper band.
The level I’m targeting for this current rally is around the 76.4% Fibonacci retracement level of the recent move down. This stands at 54644 which is a whisker below the December price opening level.
The RSI is in no man’s land although it has trended up from below and there appears further upside room if needed while the MACD indicator is generally trending up with a bullish bias.
So let’s see if price can rally further to consolidate the recent mini capitulation move before the overall downtrend takes control once again.