Brazil Stocks May Rise to Record Next Month: Technical Analysis
Bloomberg, Jan 05, 2010
Jan. 5 (Bloomberg) -- Brazil’s Bovespa stock index may climb to a record as soon as next month after advancing beyond 70,000 yesterday to near a so-called Fibonacci retracement level, according to Auerbach Grayson & Co.
The Bovespa would rise above its May 2008 intraday record of 73,920.38 in the next six weeks should it breach the 76.4 percent retracement level of its decline to a three-year low, said Richard Ross, a global technical strategist at Auerbach Grayson, a New York-base brokerage. The gauge may rally 20 percent to 84,000 by the end of 2010, he said.
The index jumped 2.1 percent yesterday, building on the best annual advance since 2003, as manufacturing expansion in the U.S. and China bolstered the outlook for commodity demand. It closed at 70,045.08, the highest level since June 2008.
“The first trading day of the year makes a very bullish statement, at least in the short term,” Ross said in a telephone interview. “After its phenomenal achievement, I don’t know why you wouldn’t retest that record level.”
The 63-stock Bovespa index surged 83 percent in 2009 as increased domestic demand, government stimulus plans and rising prices for Brazil’s commodity exports helped pull the economy out of a recession faster than most nations. International investors added 20.5 billion reais ($11.9 billion) to their Brazilian stock holdings last year, the most since the exchange began tracking inflows in 1994, Sao Paulo-based bourse owner BM&FBovespa SA said yesterday.
The benchmark gauge fell to a three-year low of 29,435.11 on Oct. 27, 2008 as the global financial crisis sapped demand for riskier emerging-market assets and commodity prices tumbled.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
To adherents of Fibonacci analysis, which uses a system pioneered by 13th century mathematician Leonardo Pisano that discerns ratios from proportions found in nature, the performance of an index when it approaches the 76.4 percent retracement level can be used to forecast whether it will keep climbing or retreat.