In Brazil: the stabbing of a presidential candidate may be the cure for the bear market

The stabbing of Jair Bolsonaro, the main presidential candidate in Brazil, has led many banks and analysts to raise their expectations for the Brazilian markets (Bovespa) and the economy. The reason is that Bolsonaro's entanglement could bring him sympathy and hence secure his victory against the left-wing Workers' Party. For markets this scenario is among the few positive ones from the election.

Another positive thing for the Brazilian markets is the weak Brazilian real. The Brazilian economy is heavily dependent on exports of agricultural products, metals and oil. One of the promising sectors in the Brazilian economy against the backdrop of the trade war between the US and China is the agricultural sector. After China has set a 25% duty on imported soybean sprouts from the US, Brazil is the only other soybean producer that can satisfy Chinese demand.

Technical picture: BRAcomp

Breaking of the Fibonacci resistance 50% (79,442) will be the decisive trend-turning signal. In this case, we will wait for a break out and a retest of 81,727 (61.8% Fibonacci resistance) to open long positions in the direction of the long-term upward trend. At these levels, the price will have exceeded the 50-, 100- and 200-day MAs. This more conservative strategy is recommended because of the increased political risk around the Brazilian markets.

Alternative scenario: If the market reaction is just a momentary impulse, we will continue to monitor the market for a break from the top or bottom of the symmetrical triangle.

Source: Bloomberg Finance L.P.

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