Brazil's selloff leaves a repair opportunity

Key points:

• Medium-term breadth in Brazil has contracted sharply, yet about three quarters of the stocks still sit above their 200-day averages.
• After similar short-versus-long breadth gaps, 12 of the 13 completed cases were higher six months later.
• Strong long-term breadth lines up with a more consistent six-month recovery, though the holding period can still include deep declines.

The crash broke the medium-term trend

Brazil is a high-beta market. Commodity prices and the currency give foreign investors a way to lean into global risk appetite, and the payoff comes with equally fast declines. Investors rarely buy it for stability. They buy it for the amplification when risk appetite turns.

The gap between the share of IBOV members above their 200-day averages and the share above their 50-day averages has widened. The distance between the two lines tells us what kind of selloff this is. The 50-day reading measures where prices sit over the past few weeks, while the 200-day reading keeps a longer record of the trend.

When medium-term participation collapses while long-term breadth is still high, has the Brazilian market managed to recover in the past?