A Short Brazil Idea

For active followers of the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), it might seem hard to believe, but the largest Brazil is up more than7% since Feb. 3.

Prior to that bounce, EWZ had been one of 2014’s worst-performing ETFs and in a sign of just much emerging markets equities, Brazilian stocks in particular, have struggled this year, EWZ is still down more than 5% year-to-date. [Brazil ETFs Trying to Stop the Madness]

EWZ’s recent bounce is of course good news for those long the ETF. It is also potentially good news for traders looking to profit on the downside.

“Over the past few years, EWZ has been relatively weak, heading in the opposite direction of the market since topping out in 2011,” notes Deron Wagner of Morpheus Trading Group. “After breaking a key support level at $50, EWZ has spent most of its time trending lower.”

EWZ’s prolonged weakness should make the ProShares UltraShort MSCI Brazil Capped (NYSEArca: BZQ) an interesting play. Remember, EWZ is down 37.2% over the past three years while the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) is lower by 7.8%. [Technical Problems Seen for Brazil ETF]

“After a false breakout above the current range high in early February, BZQ has pulled back to and found support at the rising 20-day EMA. There is also support from the short-term daily uptrend line just below the three-day low,” said Wagoner.