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  • aco_brasil0192 aco_brasil0192 Feb 18, 2010 10:18 PM Flag

    Bovespa May Retreat 11% from 50-Day Average: Technical Analysis

    Bovespa May Retreat 11% from 50-Day Average: Technical Analysis
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    By Tal Barak Harif

    Feb. 19 (Bloomberg) -- Brazil’s Bovespa stock index may drop 11 percent in the next month after climbing above its average close of the past 50 days, Auerbach Grayson & Co. said.

    The Bovespa may decline to its October low of 60,162.31 by the middle of March after rising to a one-month high of 67,836.08 yesterday, above its 50-day moving average of 67,683.95, according to Richard Ross, a global technical strategist at Auerbach Grayson. The 50-day average represents a resistance level to the index’s rally from a three-month low on Feb. 5 that interrupted a longer-term retreat, Ross said.

    Stocks are poised to extend their retreat as the dollar strengthens against the euro, pushing commodity prices lower and damping the earnings outlook for Brazilian producers, he said. The 63-stock Bovespa index has surged 130 percent from a three- year low on Oct. 27, 2008, 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.

    “When you factor in the age of the advance, the fact that we didn’t have a substantial correction for a long time means there’s a bigger potential for a pullback,” Ross, who is based in New York, said in a phone interview yesterday. “The stronger dollar/euro could be bearish for commodities and commodity- driven economies like Brazil.”

    The Bovespa fell 11 percent from a 19-month high on Jan. 6 through Feb. 5 after steps by China to rein in lending spurred concern that the global economic recovery will slow. The dollar has gained about 11 percent against the euro since Dec. 1, eroding the appeal of commodities as an alternative, as Greece struggles with debt and the rebounding U.S. economy attracts investment.

    In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

    To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

    Last Updated: February 18, 2010 21:00 EST

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