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Key chart support may give the beleaguered Brazilian stock market a much needed bounce.

Yesterday, we posted an extensive piece on the bond market, which has gotten a nice lift of late after threatening a major breakdown. Another market in need of a lift is Latin American equities -- Brazil, in particular. Coinciding with the bounce in the U.S. Dollar over the past month, Brazil has had a rough May with the benchmark Bovespa Index down some 10% for the month. Help may be on the way, however, for the battered Bovespa -- as we revealed in our Chart Of The Day yesterday on Twitter.

As the chart shows, the index is testing its Up trendline (on a linear scale) stemming from its early 2016 lows and connecting its June 2017 lows.

Will this trendline provide the spark that Brazilian bulls are looking for? A few weeks ago, we presented another potential trendline of support on the S&P Latin America Index (SPLAC). After bouncing off of the line for a few days, the trendline failed and the SPLAC sliced through it to the downside, accelerating its recent decline. And what about the breaking Petrobras (PBR) news? Is that destined to undermine whatever advantageous technical factors were lined up for Brazil? Only time will tell, but the aforementioned trendline may be the key indicator to watch.

In a Premium Post at The Lyons Share, we take a deeper dive into the charts of Brazil, SPLAC and PBR in attempt to answer those questions -- and determine the odds of a Brazilian lift nearby.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Latin American stocks are testing a potentially key line of support.

Of all the horror stories from the 2015-2016 global stock market correction, perhaps the scariest was Latin America. At its low-point in early 2016, the benchmark S&P Latin America Index (SPLAC) was was down more than 70% from its 2008 peak -- and nearly 60% off of its 2014 peak. Things were so bad, in fact, that the SPLAC actually dropped briefly below its 2008 low to register a new low for the decade. In a post published near its cycle low in February 2016, we wondered Will Latin American Stocks Finally Find Support at that key level? From the post:

“In this case, things are so bad they may be good. The 2008 low is a major low that should produce some sort of a bounce, at least in the short-term. Whether it will produce a sustainable bull market remains to be seen.”

As it turns out, the SPLAC did indeed bounce from there — with a vengeance. By 2 years later, the SPLAC had jumped more than 120%.

Of course it had to break through some considerable resistance along the way to more than doubling. One resistance point, in particular, that we highlighted last fall was the Down trendline stemming from SPLAC's 2011 top and connecting its 2014 peak. Back in September of last year, in the midst of a red-hot run, the SPLAC found itself bumping up against the bottom of that Trendline. That obstacle had us pondering whether it was Time For Hot Latin Stocks To Cool Off?

Our technical read was once again accurate as the SPLAC would fail a month-long test of the trendline, at least temporarily. After dropping by as much as 12.5% into December, SPLAC began its next comeback. By early 2018, it finally broke the post-2011 Down trendline, rising as much as 25% off of its December low.

Then the post-January global equity market correction hit and SPLAC was not immune to the damage. In fact, while most markets have sprung to life of late, SPLAC is plumbing new lows for 2018. Of particular note, the decline has now brought the index all the way back down to test the top side of the broken post-2011 Down trendline.

Now the theory goes that resistance, once broken, then becomes support -- at least, the bulls would like to see it play out that way. Do we think it will? Certainly support is innocent until proven guilty, so we'd give the trendline the benefit of the doubt here. And if it does hold, it could provide the springboard for the next big up-leg in Latin American stocks. On the other hand, failure to hold above the trendline could be an ugly development, leaving a potential false breakout on the chart.

All that said, this is but one one line on the chart -- and but one piece of evidence to consider when pondering an investment in Latin American stocks. In our Daily Strategy Videos for TLS members, we have been presenting other key chart levels of note, as well as inter-market forces that may provide better insight into which way this trendline test is going to go.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Latin American stocks have been on a tear of late, but one piece of chart resistance could put a freeze on the rally.

Among the stock market leaders during 2017, and throughout the post-2016 rally, has been the Latin American region. With countries like Brazil, Chile and Mexico on fire, it’s no surprise that the S&P Latin America Index (SPLAC) is up some 30% this year alone. It wasn’t so long ago, however, when Latin American stocks were not so en fuego.

Back in February 2016, Latin America was among the worst-performing segments of the global equity market, having lost more than 70% from its 2008 peak. Things were so bleak, in fact, that the SPLAC actually dropped briefly below its 2008 low to register a new low for the decade. In a post that month, we wondered Will Latin American Stocks Finally Find Support at that key level? From the post:

“In this case, things are so bad they may be good. The 2008 low is a major low that should produce some sort of a bounce, at least in the short-term. Whether it will produce a sustainable bull market remains to be seen.”

As it turns out, the SPLAC did indeed bounce from there -- and it has been a sustainable bounce thus far. A year and a half later, the index has gained exactly 97% since its 2016 low.

With Latin American stocks now pushing 3-year highs, it seems that nothing can slow them down. A glance at the SPLAC chart, however, reveals one piece of potential resistance that may at least put a freeze on the red hot region, even if it’s just temporary.

As yesterday’s Chart Of The Day points out, the S&P Latin America Index is now bumping into the Down trendline (on a log scale) stemming from its 2011 high and connecting the 2014 peak.

Another argument in favor of at least a pause here in the Latin American equity rally comes from Brazil. A couple weeks ago, we noted that the Brazilian Bovespa had broken out above its February and May highs. This, we argued, “opens immediate upside in the index to its all-time highs above 73,000 set back in 2008 and 2010.” The Bovespa has already hit those highs, reaching them during yesterday’s pop.

So will the former Brazilian highs and the aforementioned trendline slow down the Latin American stock rally? One piece of contrary evidence is that we have the SPLAC breaking above key Fibonacci resistance stemming from the 2008 and 2014 peaks that had held prices down in February and May. So the case is certainly not clear cut. However, there is enough evidence to suggest at least a pause in the rally.

For our unabridged assessment of the rally and potential near-term resistance in Latin American stocks, we lay out our specific strategy, including our preferred trading vehicle and specific levels to watch in a premium post at The Lyons Share.

If you’re interested in the “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share. Considering that we anticipate an extremely challenging investment environment approaching, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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After 6 and a half years, Chile’s stock market has finally hit an all-time high again.

About 15 months ago, the global post-January/February 2016 equity rally began to take form. Yes, there had already been a nice pop in most markets off of the lows. However, that initial move could most reasonably be considered a mean-reversion bounce. Furthermore, pretty much the only country that had gained key ground on a technical basis was the U.S.. That began to change in April 2016.

One country whose stock market we highlighted for its (possibly huge) potential last April was Chile. Like many resource-laden emerging markets, Chile’s IPSA Index had suffered severely over the prior 6 years. However, the signs of a potential turnaround were evident.

First off, the IPSA had already twice tested potentially key long-term support in the 61.8% Fibonacci Retracement of its 2009-2011 rally, near 3400. Secondly, its post-January bounce had brought it up to test its post-2010 Down trendline near the 4050 level. After several touches over the prior few years, we surmised that the index stood a reasonable chance of finally breaking up through the trendline.

As we stated in that April 2016 post:

Therefore, we have 2 key ingredients in place for a potentially more successful and robust breakout: 1) a major level off of which the breakout move was launched, and 2) a comprehensive test of that key level prior to liftoff. All that is left now is for the IPSA to convincingly break its 5-year downtrend.

And just to get ahead of ourselves a little bit here, the potential upside for the index could be massive. In our view, the IPSA likely launched a secular bull market in 2002, with 2 up waves complete (2002-2007 and 2008-2011). If the 2011-2016 formation in the IPSA is merely a consolidation pattern to digest the 2008-2011 gains, the next (and final?) up wave should send the market to new highs – and perhaps considerable new highs at that.

But first things first. The setup is in place. Now we wait for price to break out, which may now be underway. If it is successful, Chile may become one hot market indeed.

Well, it took a few more months of chipping away at the trendline, but the IPSA did finally break out above it in July, prompting a nice rally into November. After a few months of consolidation, and one more test of that 4050 level, from above, the IPSA came out of the shoot quickly in 2017. In the 1st quarter alone, the IPSA jumped some 20% to near the 4900 level.

The IPSA spent the 2nd quarter in a consolidation pattern, digesting the 1st quarter move in about as optimal a fashion as a Chile bull could have hoped. For 3 months, the index never dropped more than 3% below its rally highs, until a brief dip toward the end of June in what we surmised may simply be a “shakeout”. Indeed, the index snapped back immediately in slingshot fashion, hitting new multi-year highs in early July.

As we suggested in our post 15 months prior, and in recent member videos at The Lyons Share, all that remained were new all-time highs. It didn’t take long as the IPSA closed at a new all-time high yesterday of 2046.88.

So is the Chilean market ready for liftoff to those “perhaps considerable new highs” that we mentioned in the April 22, 2016 post? Or is the index overbought at this point and in need of a rest? And how can one take advantage of potential opportunities in the Chilean market?

In a premium post at The Lyons Share, we’ll discuss the important things to monitor in measuring the near and long-term potential in Chile, including the next key levels to watch in the IPSA. Furthermore, we will discuss how to potentially profit from such developments.

If you want that “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share. Thanks for reading!

Photo of Torres del Paine National Park, Chile.

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Despite the nation being targeted, trade-wise, by the new administration, the Mexican stock market is technically set up favorably.

This morning on Twitter and StockTwits, our Chart Of The Day was of the "Mystery” variety. And like our previous Mystery ChOTD, this was an international index again. We presented it as a monthly chart to accentuate its “big picture” message.

Among the chart’s intriguing aspects is the fact that the index consolidated for roughly 3 and a half years before breaking out in early-mid 2016. And following a test of that breakout point around the time of Donald Trump’s election as U.S. President, the index has burst higher again, into all-time high ground. The big picture message is that there is nothing here, from a technical perspective, to prevent this index from commencing a new, longer-term up-leg from this point.

Part of the reason we made this a Mystery chart was to remove any preconceived bias that chart observers may have toward the index, based on exogenous influences. We could envision the potential for such bias considering the subject country represented by the Mystery index: Mexico.

We bring up the issue of bias because folks may intuitively think that Mexico will be dead money during a Trump Presidency. The country has been a transparent target of the administration on a trade front, not to mention the immigration issue. But while these issues may logically bring about trepidation among investors when considering betting on Mexico, that trepidation is not borne out in the chart of the Mexico IPC Index, which is right now hitting all-time highs.

This is a good lesson for investors regarding the need to focus on strictly market-related data when making investment decisions. Outside factors typically have little or no sustainable impact on prices, at best. And, at worst, more often than not, they result in the opposite influence, psychologically, than what is correct, investment-wise.

So how does one profit from opportunities in Mexican stocks? At our new “all-access” site, The Lyons Share, we outline for members the vehicle and parameters for taking advantage. Check out The Lyons Share!

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The Mexican stock market tested its July breakout to all-time highs -- with resounding success.

We’ve mentioned a number of markets over the past few weeks that were testing key levels within the context of the mini-selloff. Most of them pertained to trendlines and, following Wednesday’s Fed meeting, most of the tests were successful. Today’s Chart Of The Day dealt with a test of a different level. In July, we mentioned that after threatening for 3 years, the main Mexican IPC Stock Index was at long last breaking out to new all-time highs (of course, priced in Pesos). Following a brief and successful test of that breakout level in early August, the IPC resumed its post-breakout foray to new highs. Over the past month, the index has retreated to again test the breakout level. It has passed that test so far -- with flying colors.

Witness this week’s reaction of the IPC upon testing the former highs of the past 3.5 years.

On this close-up chart, it is easier to see the explosive reaction to the breakout test.

After the IPC’s month-long pullback bottomed a week ago, the index leapt some 5% this week, so far. What you want to see in a breakout is follow-through, which the IPC demonstrated in July-August. And upon a test of the breakout point, you want to see an explosive reaction back to the upside. This is a textbook example of just that.

This does not guarantee Mexican stocks will continue their ascent into all-time high ground. However, along with the 3 and a half year consolidation at the highs, this resounding response to the breakout level would seem to bode very well for the Mexican market

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More from Dana Lyons, JLFMI and My401kPro.

The setup is in place for a breakout of long-term significance in the Chilean market.

We continue this week’s trot around the globe by heading to South America to spotlight one country’s stock market that been on our radar for some time: Chile. When we look for breakouts, there are a few things that we like to see. The obvious one is the actual point at which price breaks above the significant resistance, be it a prior top, a trendline, a moving average, etc. The less obvious and underrated factor is the initial setup leading up to the breakout. Take a look at Chile’s IPSA Stock Index, for example.

Currently, we see the IPSA arguably moving above the Down trendline that has been in place since 2011, as well as the 1000-day (200-week) moving average. If successful, this could mark a breakout of significant proportions for the Chilean stock market. The kicker, however, comes in the setup.

When we say “setup”, we mean the circumstances surrounding and preceding the breakout. What makes a setup a “good” one? In our view, there are several factors. We will deal with two here, as demonstrated by the Chile IPSA Index. First off, the level from which the breakout move is launched is important. And the more significant the level, the better the odds of a successful and substantial breakout.

For example, witness the level from which the IPSA bounced in January prior to its current “breakout”. This level -- around 3400 -- was meaningful for a variety of reasons, including:

It marked the former all-time highs in 2007 and briefly in 2009.

It marked, at the time, the position of the Up trendline connecting the 2002 and 2008 lows.

It marked the 38.2% Fibonacci Retracement of the rally from the major low in 2002 to the high in 2011.

It marked the 61.8% Fibonacci Retracement of the rally from the major low in 2009 to the high in 2011.

As you can see, that was some seriously heady stuff at the level of the previous low. Why is it important that price bounced from a consequential spot like that?

Major chart levels -- like magnets -- tend to attract prices, eventually. Thus, if an important level has not yet been tested, that possibility will continue to hang in one’s consciousness until it occurs. Therefore, if the odds are that prices will test a certain level, it is best to “get the test over with” and out of the way so that prices can commence their next journey. And given the major importance of the particular level, the odds of it “holding” are very good -- meaning that that next journey should be higher.

(One example of an index that has recently bounced without yet testing a key level below is the Indian Nifty, which we highlighted on Monday).

So we know that the level from which a breakout move is launched is key. Secondly, the manner in which the level is tested can also be of importance. Ideally, we like to see a level tested -- and re-tested -- in order to support the view that prices are ready to reverse -- in this case, move higher.

If a level has seen multiple tests, that suggests a better base or more complete bottom process is in place. In the case of the IPSA, prices tested the key 3400 level on 2 occasions, January 2014 and January 2016. Thus, it has potentially put in a solid base, or complete bottom process (or double-bottom).

Therefore, we have 2 key ingredients in place for a potentially more successful and robust breakout: 1) a major level off of which the breakout move was launched, and 2) a comprehensive test of that key level prior to liftoff. All that is left now is for the IPSA to convincingly break its 5-year downtrend.

And just to get ahead of ourselves a little bit here, the potential upside for the index could be massive. In our view, the IPSA likely launched a secular bull market in 2002, with 2 up waves complete (2002-2007 and 2008-2011). If the 2011-2016 formation in the IPSA is merely a consolidation pattern to digest the 2008-2011 gains, the next (and final?) up wave should send the market to new highs -- and perhaps considerable new highs at that.

But first things first. The setup is in place. Now we wait for price to break out, which may now be underway. If it is successful, Chile may become one hot market indeed.

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More from Dana Lyons, JLFMI and My401kPro.

Brazil is inching its way to impeaching their current president, Dilma Rousseff. Earlier this week, a committee in the lower house of Brazil’s Congress voted to recommend President Rousseff's impeachment, and the Supreme Court followed suit by denying a request to suspend the impeachment process. Rousseff is on the chopping block for her alleged involvement in the Petrobras scandal and allegedly manipulating public finances. Her approval rating is now in the single digits and Brazilians frequently take to the streets to demand her removal. A vote in the full lower house is expected to take place on Sunday, followed by proceedings in Brazil's Senate, where the chamber could use a simple majority to put Rousseff on trial. Doing so would suspend her position for up to six months, making Vice President Michel Temer acting president.

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