Ibovespa rises 5.4% in the week. Find out what tends to happen the following week – 04/14/2023 – From Grão to Grão

The Ibovespa rose 5.41% this week, reaching 106,279 points. Although it was a significant increase, it was just a relief from suffering. The appreciation was not enough to erase all the year’s losses. Based on past data, I describe what happened in the week following extraordinary weeks like this one.

Yes, the appreciation of the Ibovespa this week was extraordinary.

To understand how singular it is, I looked up the statistics of the weekly returns of the Ibovespa since 2000. With these data it is possible to understand if the optimism usually extends.

Since 2000, a total of 1214 weeks have occurred. Of this total, in just 71 times, that is, 5.85% of the weeks, the Ibovespa appreciated by 5.4% or more in a single week.

So weeks like this one are almost a rarity.

The histogram with the high frequencies by return bands is shown in the figure below.

In these almost 23 years, the Ibovespa had an average weekly appreciation of 0.22%. The best week showed an increase of 18.34% and, the worst, a decrease of -20.01%.

Optimists could imagine that after a week as positive as the one we’ve just been through, the good mood should continue and the rise would be at least better than the general average.

However, this was not the case in the past.

In fact, of the 71 weeks that the Ibovespa rose by 5.4% or more, in just 34 weeks the return on the following week was positive, that is, greater than zero.

That’s right, although with a small margin, the statistic points out that this week’s mood tends to cool down next week and it’s not just the number of positive weeks.

The average return in the following week was negative at -0.42%.

This result does not seem so encouraging when looking at what just happened this week.

For those who like to do a “quick spin”, pay attention to this next piece of information.

Those who invested only during the week following highlight weeks like this one, lost heavily.

The composite investment result for the entire period, but in the weeks following the highlights was negative at -28.5%. Therefore, those who tried to make a short-term “bet”, at times like this in the past, suffered a heavy loss.

After highs as relevant as this week’s, a profit-taking movement is usually natural.

So, beware of short-term enthusiasm. If you decide to invest in the stock market, remember that you need patience and a long-term horizon, that is, more than five years.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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