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Bovespa Investors in for a Rough 2017

Prepare for more weakness in the Brazilian stock market

Brazil’s investors finally took a breath last year. After several years of slow, but steady decline, the country’s benchmark Bovespa index rose from as low as 37 046 in January to as high as 65 291 in October. So, basically, 2016 has been a great year. Unfortunately, 2017 looks like it is going to be nothing like it. Yes, the index continued climbing until late-February, 2017, but then the bulls ran out of power, allowing a retreat back below 62 500. Not a big deal, you might say, but the problem is that according to the Elliott Wave analysis of the chart below, the current weakness is just the beginning of a much larger decline.
elliott wave bovespa index daily chart
The daily chart of the Bovespa stock index shows the structure of the 2016 rally. As visible, a five-wave impulse has been drawn, indicating that an uptrend is in progress. However, the Elliott Wave Principle says that before it can resume, a three-wave correction in the opposite direction should occur. That is what we believe has been developing since last month’s high at 69 488. So far, the pullback is too shallow, which means the bears are probably not done yet. A natural downside target would be the resistance area of wave 4 of the impulsive sequence. In other words, if this count is correct, the Brazilian stock market index could be expected to revisit the area near 57 000 from now on. Maybe even lower.

In conclusion, 2017 is likely to revive the memories of 2015, not 2016. We do not expect a bear market that deep, but a noteworthy correction is a real possibility. Good investing opportunities would present themselves near its bottom.

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