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Technical Woes Seen for Brazil ETF


On Tuesday, the iShares MSCI Brazil Capped ETF (EWZ) , the largest ETF tracking Latin America’s largest economy, rose almost 3% on volume that was 56% above the daily average.

Normally, that would be considered a positive sign, but EWZ entered Tuesday’s session as one of the 10 worst non-leveraged ETFs this year. Tuesday’s close at $39.16 is four cents BELOW where EWZ closed on March 23, 2009. The ETF, which flirted with $75 three years ago, has not closed above $50 since October 2013. [Brazil ETFs Look for Bottoms]

Not surprisingly, the forecast for EWZ held by some technical analysts is less than enthusiastic.

“Look at EWZ, we see that the price action is in a clear downtrend and appears headed for prior lows of 2008-2009 around $30,” writes Deron Wagner of Morpheus Trading Group. “EWZ has another 20% to 30% to selloff before hitting support.”

The thought of EWZ trading down to $30 is chilling to say the least. EWZ last traded below $30 in November 2008 during the global financial crisis. Prior to that, $30 was just a pit stop on the way up as EWZ almost made its way to $100 in the second quarter of 2008.

Speaking of $100, the ProShares UltraShort MSCI Brazil Capped (BZQ) , the double-leveraged inverse answer to EWZ, closed above $101.50 Tuesday, but Wagner noted “pullback off these levels within the next few weeks could produce an ideal long entry point in this inverted ETF.”

Even with Tuesday’s 6.4% loss, BZQ is still up nearly 21% to start 2014. In a sign of just how bad things are Brazil ETFs, the Direxion Daily Brazil 3x Bear Shares (BRZS) was Direxion’s best-performing ETF last month with a gain of over 44% while the Direxion Daily Brazil Bull 3x Shares (BRZU) was that issuer’s second-worst ETF in January, according to Direxion data.

iShares MSCI Brazil Capped ETF