it’s no secret that the Brazilian economy, capital markets and political landscape are in disarray. And as expected, the most widely traded Brazilian ETF (EWZ) is one of the worst performing (non-leveraged) ETFs of the past six months. The Brazilian ETF has shed over 40% of its value, dropping nearly 12% in the last month alone. Given the dramatic move and the tendency for mean reversion in the markets, it begs the question: “When will EWZ stabilize?”
When we last checked in on EWZ (mid-Febrauary), we noted that the 33 level appeared to be a near-term low. It did hold and consolidate in the 34-36 range before plunging dramatically again in early March.
Looking at the charts, we see that the trend line rejection and loss of the 32.50 level clearly marked a new leg down. However, the vertical orange lines – marking near-term lows in the 12 day rate of change and the 14 day RSI – have shown a tendency to be short-term lows.
Putting the trend in broader context, the Heiken-Ashi chart of EWZ shows a pattern of 10-15 day periods of consolidation between each downward thrust. The 50 day EMA has served as a roof for each these rebounds.
With the near-term oversold conditions and the pattern in the Heiken-Ashi chart, we may see more consolidation for the Brazilian ETF over the next several weeks. The primary trend is clearly down but price action suggests that there will be better entry points to initiate a new short in EWZ. Note that the trailing stop on my firm’s recommended EWZ short position was hit during the mid-February chop.
Thanks for reading and have a great week.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
