Olympics Rally Ends for Brazil Index Fund

The current correction has produced a LOT of intriguing charts. The Brazil Index Fund ETF, EWZ, is certainly one of them (shown below). EWZ suffered its largest one-day drop since March, and it has now completed a roundtrip for its Olympics-driven rally. EWZ is now already down 12% from its closing 14-month high just last week.

Shortly after Brazil won the privilege of hosting the 2016 Olympic Summer Games, I wrote that Brazil presented much greater investment potential than the U.S. I am treating this correction as an attractive buying opportunity. I suspect that EWZ will reverse at least 20% from its highs. That point just happens to be $62 which represents the location of the last breakout from consolidation to fresh 52-week highs and a new rally.

See chart below:

Brazilian stocks sell-off

*Chart created using TeleChart

Note well that Brazil recently proposed a 2% capital tax on foreign investments in an effort to raise revenues, stop the appreciation in the real (Brazil’s currency), and prevent an asset bubble. This announcement marked a top in EWZ, but a 20% or more correction should be more than enough buffer for this bump in the road.

Be careful out there.

Full disclosure: Long TNE

Comments

[isaac the t...:]

Good observations, I agree with you analysis. BRF too.

Nov 01 10:56 AM

[Nikola:]

There is no doubt in my mind that the Olympics will bring a lot of good things to Brasil in the way they did to China, and this will be reflected in the price of EWZ (and BRF) over the next six years. So I agree with the premise here but disagree with the headline: the Olympics rally is far from over. It has just begun, short term market corrections notwitstanding.

Nov 02 05:00 AM

[NoGambler:]

EWZ moves hysterically, responding to US news, while wise turtles over in BRF are not so easily shaken.

Nov 02 10:14 AM

[robert99:]

I hold EWZ, and I've been waiting on a correction so I can grab some BRF.

Nov 03 09:10 AM