BRAZIL IBOVESPA : A significant support area
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07/02/2012 | 12:34pm
Opinion : Bullish above 52480 BRL
Target price : 61300 BRL
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Brazil was the 10th largest nation and is now the 6th, with a GDP of 2.51 trillion dollars in 2011. This progression in the economic hierarchy was done in twenty years. Investors who followed this emergence have greatly benefited from the evolution of the local stock market valuations, which grew by about 400% over the past decade.
To date, the Sao Paulo stock exchange or Bovespa (Bolsa de Valores de Sao Paulo), made up of 67 companies, capitalizes 1,200 billon, making it the eighth stock exchange in the world. It has an average PER of 11.1x (9.5x for 2012 and 8.16x for 2013). The two biggest market capitalizations are Vale SA (steel industry) and Petroleo Brasileiro (Petrobras) with nearly 10% each.
Technically, the index is in a consolidation phase and the last peak at 68,400 points signaled the end of the strong growth to enter in a decline phase (-22% in two months). Volatility is at its zenith and the market rarely comes in accumulations phases that might inhibit these erratic variations.
At the contact of 52,480 points, the index went ahead 10% up (57,200 points). But the selling pressure took control again and the security came near its 52,480 support. This area is relevant because of technical convergent patterns: it is near to the short and mid-term support and to a historical slant. The Bovespa index should establish a new recovery, supported by these graphical points, to gather a “buy” consensus in order to counter the trend.
The last trading session, up 3%, duplicates the day of June 6th, which had pushed the index toward 57,200 points. Increasing prices could prompt chartists to identify a double bottom, a strong bullish pattern which could give a more ambitious target near to the 61,300 points area. Before, The Bovespa index has to go past 50-day moving average, close to 57,000 points.
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Patrick Rejaunier
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