Brazil Crashes, Global Markets Didn't Care
1.) BRAZIL - It is said that elections have consequences. Boy do they ever! It wasn't long ago I pointed out the massive +12.5% up day on the election news that it looked likely Bolsonaro would likely be the winner. Then the election came and on Monday that same basket of Brazilian stocks closed down almost -20%! Was that basket a buy on the up move? No. I pointed out how you need to see how it acts after a move like that. To its defense, it was acting fine. But then something clearly changed. So, is it a buy now? No. -20% in a day is a lot of damage. It could be said that the election results were "tainted". Cristiano Zanin, Lula’s former personal lawyer and now a Supreme Court justice, ordered a nationwide two-hour extension of voting following a request from Lula’s campaign. Reportedly, that was 3 minutes before the scheduled poll closing time. Before adding this "extension", Bolsonaro was leading the polls. I find it interesting that many of Lula's supporters are self-declared communists. While I think that has a lot of problems, what I am most interested in is how global markets reacted to the news of Brazil's market crash. Nothing. Crickets. This was a “six-sigma event,” which is basically a complicated way of saying, “According to our math, that wasn’t supposed to happen.” But it did! For comparison, on Black Monday in October 1987, the Dow Jones Industrial Average fell 508 points, or 22.6%. People are still writing books about that crash almost 40 years later. Brazil just had a stock market event in that neighborhood. Brazil was having a financial fire drill, and everybody else kept eating lunch. If you had told me beforehand that Brazilian stocks would lose about a fifth of their value overnight, I’d have expected trouble somewhere else. Maybe other emerging markets get dragged down. Maybe investors start dumping stocks around the world. Maybe somebody who borrowed too much money gets forced to sell whatever they can...hedge fund blow up stuff. Instead, investors kept buying U.S. stocks. Technology led the way. European stocks rose. The selling in Brazil didn’t turn into a broad rush for the exits. We spend so much time studying what makes stocks fall. Watching what fails to make them fall can teach us something, too. I certainly wouldn’t take this reaction as bearish.
2.) CTAs - These are Commodity Trading Advisors. They specialize in trading futures contracts and related derivatives like options on futures or swaps across commodities, equity indexes, bonds, currencies, and other markets. Despite the “commodity” in the name, modern CTAs trade a wide range of liquid futures markets—not just physical commodities like oil, gold, or grains, but also stock-index futures (e.g., S&P 500), interest-rate futures, and foreign exchange. CTAs are some of the bigger money movers on Wall Street. So, when they move, markets tend to move as well. Leading into this most recent tech, dare I say "bottom" (post here), CTAs sold nearly $3 billion of Nasdaq 100 futures. That's the largest three-day selling wave since March 2025. What came after that March 2025 correction? A really big rally. Now it looks likie those CTAs are under-positioned.
3.) KOSPI - The South Korean stock index is at a do or die (sorta) level after rallying +6.6% overnight. We've seen this movie before. We had some buy signals flashing and it rallied right up to the bottom of trend (shaded area), aaaaaand failed. So where we now? The KOSPI needs to break above 6560 and hold for it to move back into a bullish trend / upward bias. So it still has some work to do. Of course, given South Korea's heavy focus on semiconductor business, the semiconductor sector (SMH) is right in there with the KOSPI. A break and hold for SMH above $594 would shift it's momentum back to bullish. The difference we might be seeing this time is that the semiconductor sector's trend level has shifted higher and CTAs look under-positioned. That tends to be a good sign.
