Brasil, the next bubble?

There is a very interesting development happening in Brazil. A campaign has started that wants to grow the number of investors in the stock market, especially the number of investors with smaller pockets.

To archive that, the legendary footballer Pele is the anchor man of the spots. He explains his fellow citizens how the stock market is working: like his football career! When Pele and the brazil national team wons championships, the Pele stock climbed. After Pele got injured and Brazil was defeated, the stock fell.

Pele advertises the brazil stock market (seen at boerse.ard.de)

Of course, thats never the way the markets will work as the markets are an anticipation entity. But it is understandable for the public, especially for brazilians I guess.

In Germany we have had a similar story back in 1997 - 2000. That time a big IPO was planned, the IPO of Deutsche Telekom. To make the germans a nations of stock holders, a well known actor, Manfred Krug, advertised the stock. The story was simple and understood by the public. The IPO was a great success and marked the beginning of a stock mania in Germany.

For a bubble to develop we always need some ingredients: (1) a noteable, positive development in the real economy and (2) a slogan that transports the story neatly. The ingredients should be a mechanism to infect the brains of the public. Back in 1997 it was the internet story that combines with the Dt. Telekom IPO to a nice story, well advertised to the public. Now in Brazil it is the globalisation and the huge success of the brazilian economy these days. The ingredients for a bubble are there.

Let's take a look on the chart of the IBOV, the brazilian stock market index:

IBOV Index

We have reached a very intersting level in the market. The 70.000 points is a major resistance that worked as a barrier multiple times in 2008 and 2010. If the market manages to break this level, from a technicians point of view there is a huge potential as the calculated price targets will lie around 100.000 points. If such a development takes place, the ingredients of a bubble may transform the market from a booming to a bubbling entity. You have to watch.

Otherwise, if the campaign fails to lift the market above the resistance and the index falls below 58.000, than the technical topp may prove as an injury for Brazil and Pele. In football, the next try for a championship is then 4 years away ...