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HEAD & SHOULDERS


Bovespa Consolidates At Key Support

07/28/05 01:08:08 PM
by Arthur Hill

After an important trendline break, the Bovespa is consolidating and further weakness would be most bearish.

Security:   BVSP
Position:   Hold

The Bovespa Index ($BVSP) represents the Sao Paulo stock exchange in Brazil. On the weekly chart, the index suffered an important trendline break in April 2005 and never fully recovered. This trendline marked the lower boundary of a rising price channel, and the break ended an advance that began in May 2004.

Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
Since breaking trendline support, the index consolidated over the last few months and the overall pattern looks like a head-and-shoulders reversal. These are major reversal patterns that require confirmation with a neckline support break. A move below the May 2005 low (23,675) would confirm this bearish reversal and call for a continuation of the March-May decline.

Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
A triangle formed on the daily chart, and the subsequent breakout will provide an early directional clue. The index declined sharply in March/April and then consolidated. A move below the June low (24,000) would signal a continuation lower, while a move above the mid-June high (26,267) would be bullish.

Triangles are neutral patterns, and MACD confirms this neutrality. This momentum indicator is hovering around the zero line and is relatively flat. A break above the June high or below the July low can be used to confirm a break on the price chart.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
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Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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