BRICin’ It
Risk lovers may be starting to get cold feet if recent price action in Emerging Market (EM) equities and commodities is anything to go by. Indeed, I have started to see quite a few compelling short-term sell signals in global markets, and not just confined to the frontier plays, but the major EM risk bellwethers too. Just take a look at some of these views put out by my colleagues at Business Monitor, which certainly got my attention this afternoon…
India – Sensex Index
It looks like the Sensex’s Indian Summer may be coming to an end, with initial fervour over May’s election results quickly giving way to budgetary concerns. The chart above is pretty ugly, technically speaking, with a potential break through support at 13,400 exposing a 1,200-point gaping hole to the downside. BMI’s Asia team has been riding this short view since 14,375 (implied gains of 4.2%), and tell me they wouldn’t be surprised to see the index tumble all the way back to 12,200.
Russia – RTS Index
Moving on, Russia’s RTS has lost its feet on sliding oil prices, with the bourse slicing through key support at 920 this morning. Brent Crude oil prices have fallen by 14.6% since hitting US$73.50/bbl on June 30 and further declines to US$60.00/bbl are looking likely. Given that Russian stocks essentially amount to an energy play, this is clearly bad news for those bullish the Bear. Watch out for a short-term move towards 800 – a whole 10.5% south of the current level – regardless of mutual backslapping by Messrs Obama and Medvedev in Moscow.
Brazil – Bovespa Index
Brazil next, and BMI’s Latinos are waiting for a confirmation of a ‘head and shoulders’ reversal formation in the Bovespa, and would look to go short the market on a neckline breach at 49,500. Again, a combination of lower commodities and higher volatility would be Brazil-negative, putting a technical target of 44,000 into focus.
China – Shanghai Composite & Relative Strength Index
Now, regular readers will recall my apprehension back in May, when I questioned how long the EM equity party could continue to drown out global concerns. Fundamentally, there is still a lot to like long term, at least in Brazil and India, but EM markets appear to have gone up too hard and too fast in recent months. Could this spell the re-emergence of the overall bear trend, or is it just a profit taking-led technical correction? The answer to this conundrum may lie in the one BRIC missing from above – China.
The Shanghai Composite index is so far refusing to follow the crowd lower, and remains stubbornly fixed on a quite unbelievable uptrend. This bubble-like behaviour is a concern (check out the RSI), but my colleagues insist that the stock market could yet run much higher. If such a scenario were to occur, I would have to assume that other leading equity markets (which would include the above) would be brought along for the ride.
The jury’s still out on this one…