The Brazil ETF Index has been in a strong uptrend since the beginning of February 2014. Starting from 38.00, it rose to above 49.00, where prices currently are. After 3 months of rally it is easy for the bulls to carry away. What can prevent us from falling into the bull-trap is the Elliott Wave Principle in combination with some technical indicators, the Relative Strength Index for example.
Recommended reading: Elliott Wave Patterns
From an Elliottician’s point of view, the above chart shows a classic impulsive five to the upside. According to the theory, after every five waves, a three-wave correction should follow. This means, that now we have to prepare for a reversal to the downside, which could bring prices down to the previous wave 4 or around 45.00. Now the conventional technical analysis. As you can see the RSI indicator is showing a bearish divergence between waves 3 and 5. This is another evidence, supporting our expectations. However, since we have a five-wave sequence to the upside, once the 45 zone is reached, we might start looking for new signs, that the uptrend is ready to resume.
Chart by www.trader.bg
