Brazil May Be Finding a Bottom

As I noted yesterday in The U.S. VIX vs. a BRIC VIX, emerging markets have been struggling mightily in the past few months.

An excellent example of the weakness in emerging markets can be found in Brazil, where the Brazil country ETF (EWZ) fell 44.3% from a late May high to a low that was made yesterday. Now, picking bottoms is a game best suited for those who are long on hubris and short on common sense, but there are several factors which lead me to believe that yesterday’s low may turn out to be an intermediate or long-term bottom.

From a purely technical perspective, the chart below shows Tuesday as the lowest close (omitted is the intra-day 52 week low from yesterday). Also on Tuesday, EWZ’s options volume hit a new high for 2008 and implied volatility spiked to levels not seen since the March panic. Of course, none of these factors guarantees a bottom, but taken together, and given the relative strength of EWZ once again today (up over 4% as I type this), they increase the likelihood of a profitable entry.

Disclosure: Long EWZ at time of writing

Comments

[Brazil Inve...:]

Thank your for your article and insight- we will be putting a link up to your article tonight as we share your views.

southamericanstocks.co...

2008 Sep 12 03:13 PM

[dlaw:]

You have to ask yourself why so many apparently unrelated things are going down at the same time. Well, at least I do.

2008 Sep 12 06:25 PM

[John-Galt:]

dlaw, its all related to reduction in leverage. As capital becomes scarce and scared, everything gets sold.

2008 Sep 13 05:55 PM

[maelstrom:]

dlaw...Chaos Theory

2008 Sep 19 01:58 PM

[RobW25:]

Trading volumes in Brazilian stocks have been up sharply in the past five sessions.

www.mobindex.com/quote...

2008 Nov 11 12:00 AM

[RobW25:]

Trading volumes in Brazilian stocks have been up sharply in the past five sessions.

www.mobindex.com/quote...

2008 Nov 11 12:01 AM