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Is Brazil a Buy?

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    November 6, 2012

    With the U.S. market topped out since mid-September, there is an increased scramble on Wall Street to make a bullish case for select global markets.


    And there are a number of global markets that have our attention, potentially close to buy signals.

    But one of the most popular recommendations on Wall Street and internet sites seems to be Brazil, the world’s 6th largest economy. This morning’s Barron’s alone has two articles on Brazil. And Wall Street analysts have been making the case for Brazil in interviews.

    Brazil’s problems of the last couple of years have been similar to those of China, surging inflation that prompted the government to raise interest rates and tighten other monetary policies in an effort to bring inflation under control, going too far and slowing its economy to what is expected to be GDP growth of just 1.5% this year, trying to re-stimulate by cutting rates again, with some signs of success showing up.

    Continuing worries include the slowing global economies of its trading partners, slowing global demand for its natural resources, and lingering concerns that inflation, already at 5%-plus, could become a problem again.  

    Some of the positives being outlined are longer-term, that Brazil’s growing middle class will spur domestic demand for the country’s products, and the government’s increased spending on infrastructure as part of its re-stimulus efforts will pay off down the road.

    But there are also positives showing up in the short-term, including improvements in consumer confidence and retail sales. And yesterday it was reported that Brazil’s manufacturing sector expanded in October (its HSBC PMI Index rising above 50.0 to 50.2) for the first time since March.

    We took a nice double-digit profit on a buy signal on Brazil last year, but took the profit in February.

    But, while Brazil is one of the countries we are watching closely for a potential buy signal, our technical indicators are saying it’s still too early to listen to the positive case.

    On the short-term charts, Brazil’s market is stilled topped out since mid-September. And the consensus of the 35 short-term technical indicators we use, while improving remains on a sell signal, with potential overhead resistance at the 50-day m.a., and a potential ‘head and shoulders’ top still in place.


    And, intermediate-term:

    Brazil’s market did rally some off the June low with the rest of global markets, and even managed to break out briefly above its long-term 200-day m.a. But it did not get back to anywhere near its March high before rolling over again at a lower high.

    And the intermediate-term indicators remain on sell signals.


    We suggest looking elsewhere for now.

    Gold Is Nearing Potential Support – But.

    We’ve been on a sell signal for gold since October 16, when we took out profits from the August 22 buy signal. Our initial downside target is around $1,655 an ounce. That’s the level of the potential support at its 30-week m.a., as well as the potential trendline support on the short-term chart.

    After yesterday’s plunge it’s getting there.


    That initial target may have to be revised if the m.a. does not provide support.

    And since the consensus of both our intermediate-term and short-term technical indicators remain on sell signals for gold, that could happen. Especially with a number of our intermediate-term indicators like Money Flow and the Stochastic Oscillator potentially having further to go to reach the oversold levels they usually reach at gold’s correction lows. 


    To read my weekend newspaper column click here:  Investors Are Not Dumb!

    Subscribers to Street Smart Report: The new issue of the newsletter was out Tuesday and is in your secure area of the Street Smart Report website.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!