According to market technician Greg Schnell at stockcharts.com, the commodity countries (Canada, Brazil, Australia, Russia) are telling us a significant story.
Here is what he had to say about Bovespa’s chart:
This Brazil chart lacks all the things we like to see. It failed in late January on the test of the 10 WMA. Two weeks later, it failed to hold above the 40 WMA. The first week of March was very important on this chart. You can see the blue candle went lower than the week before, then bounced. Then it soared above the 40 WMA, hitting the 10 WMA. We would be gettting very bullish. But then it finished the week back at the 40 WMA. Still in the top half of the week, it was ok. The next week, it went up against the 10 WMA and stopped. It fell from there, back below the 40 WMA and closed near the lows. Yucch! Last week it fell below a very solid trendline from the last 2 years. It closed below there. At this point, a technician starts to follow the price action intensely. If it gets support here, things are tragic but at least it is bouncing. Yesterday, the $BVSP continued lower giving us confirmation of the break below the line. You can also see the red line 10 WMA fell below the black line 40 WMA. That is how we start a downtrend. The short term average goes below the long term average. So red flags are going off all over this chart. It is a weekly chart, so it has until Friday to make it back up above Monday, back above last weeks close and back above the trendline.
But I need to show one more chart for Brazil. The monthly chart.
Let’s walk through this chart. Starting at the top of the chart, look at what the RSI is telling us. It keeps making lower highs and you can see that before the financial crisis it lived above the 60 RSI line for 3 years. Now it is exactly the opposite. No momentum higher. Moving to the price box, we notice when the black trendline broke in June 2008, it was a really big deal. You can see we are now breaking below the current black trendline which is a monthly trendline. The Index has now also fallen below its 10 MMA and that is a problem. I have put a 20 MMA in Brown on the chart as I find a 40 MMA just too long to be relevant for my investing cycle. We are below the trio of the trendline, the 20 MMA and the 10 MMA. The trendlines are confirming a long term down cycle. This is as strong a message as we can get that something is amiss. But it’s only one country. Being aware of this condition should help us position better if investing in Canada or Australia. If life is a highway, it’s telling us we might have to detour around the commodity sector.