A Quick Look at the Crash and Recoveries in India, Brazil, and China

Nov 15, 2009: 8:47 PM CST

Let’s take a quick flight around the globe to view the weekly charts from the peaks in 2007 to the present recoveries in the broad stock market indexes of India, Brazil, and China to see how far an index fell and how much it has recently recovered.

First, let’s start with India.

India’s “Nifty” Index has retraced roughly 65% of the late 2007 peak (India peaked in December, later than the US’s October peak) to the recent index highs shy of 5,200.

Price briefly retraced in a pullback to the rising 20 day week EMA at the 4,600 level, though the recent October swing highs were met with a distinct negative momentum divergence at the upper Bollinger (volatility) Band – a move back down into the support of the 20 EMA was thus expected.

There is also prior price resistance at the 5,250 level from the May 2008 swing highs at the same value, so any move above 5,250 would be very bullish and argue for further gains.

Until then, the buyers are going to have to advance prices beyond this heavy resistance level and break through this negative divergence.

Trend and EMA structure remains positive – so watch for a break under 4,600 to argue for a deeper retracement in price.

Next, we’ll move to China.

Despite all the talk about the Chinese Economic recovery, the Shanghai Stock Exchange Composite Index has retraced only 38.2% of the 2007 peak (which also peaked about the same time as the US S&P 500).

Keep in mind that the S&P 500 is about 20 points shy of its 50% Fibonacci retracement.  We would need to see the Shanghai Index rally to the 4,000 Index level to accomplish this feat.

Still, there is strong support from the convergence of the three moving averages at the 2,750 – 3,000 level, which held as key support on the recent pullback, and any move above 3,500 would be very bullish and argue for a further run to the 4,000 level.

Finally, we’ll view the almost full recovery in Brazil:

Of the three global markets shown here, Brazil has shown the most relative strength off the lows – more than doubling in value and retracing around 85% of the fall from the 2008 highs.

Brazil peaked later than the US, China, or India – and was most tied to the commodity crash (see the $CRB Index) in mid-2008.

Despite this, Brazil’s Stock Market Index has recovered more than Brazil, China, India, the United States, and the CRB (Commodity) Index in an impressive and almost relentless rally off the October 2008 lows (bottoming well in advance of the US Market Low in March 2009).

I’ve drawn in rising parallel trendlines, and price recently pulled back from the upper trend channel as price tested prior resistance from the 66,000 index highs as shown on the chart.

I’ve also drawn in a possible Elliott Wave fractal five-wave count, though a breakthrough of the 67,500 level would argue for an extended ‘v’ wave instead of peaking where I have drawn it.

A break above the horizontal resistance – and a negation of the negative momentum divergence as shown – would argue for a march to new index highs.

Until then, watch the horizontal trendline for possible resistance.

Keep looking deeper not only at these indexes, but from other stock market indexes from around the world.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

5 Comments

5 Responses to “A Quick Look at the Crash and Recoveries in India, Brazil, and China”

  1. Jayesh Gala Says:

    I follow your tweets and find your analysis very impressive and useful. 7 month support trendline would now would be stiff resistance for Nifty ? 5300-5370-5550 are resistance zones if Nifty crosses above 5200 levels. Personally I dont see Nifty to move past 5550 in a hurry ( 5500 is first corrective bounce from first bear wave in 2008, as there are too many anchor investors ready to get out ?)
    Thanks & regards
    Jayesh Gala
    http://www.TradersPlace.in

  2. Corey Rosenbloom, CMT Says:

    Thanks Jayesh,

    The rising trendline on India's market is not as easy to draw as Brazil's, but I'd watch prior resistance from April 2008's 5,250 high (horizontal trendline) for clues as to whether price might reverse down there… or break through to new recovery highs.

    A lot of global markets – including the 4 US Indexes – are showing negative divergences at key resistance levels, so it will take a strong amount of buying to counteract the profit-taking sellers and new short-sellers here.

    A true test of the global markets' recoveries will appear in the next few weeks.

  3. Jayesh Gala Says:

    Ok. Thx. I would keep a close eye on 5250.

  4. Vipul Ramaiya Says:

    Hello,

    My Name is Vipul Ramaiya and am writing from Ahed, India. I am currently pursuing CFTe, Level 2 candidate. I regularly follow your blog and appreciate your comments and advice. Keep up the good work.

    I had some questions regarding the chart you put up above of the SNP CNX Nifty.

    First, can you please explain the settings that you use in the above chart, both the moving averages as well as the MACD (3,10,16). Are these appropriate for use in the daily charts as well?

    Secondly, if you take a look at the daily charts, you will see that the 6 month rising trendline has been tested like 3 times and broken around the 5050 mark. I will really appreciate your views and conclusions for the same.

    Regards
    Vipul Ramaiya

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