The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest Brazil ETF by assets, climbed nearly 4% Thursday, but a deeper look at the moribund ETF’s charts says Thursday’s positive action does not mark an earnest reversal.
EWZ’s Thursday pop arrived a day after the ETF hit a six-year low with four other Brazil funds hitting new 52-week lows. On Wednesday roughly half of the ETFs that touched all-time lows were Brazil funds, a sign that ETFs tracking Latin America’s largest economy have a long way to go to earn back investors’ trust. [Giving up on Brazil ETFs]
Charts say the road to redemption for EWZ and other Brazil ETFs is getting longer, not shorter.
“The six month Heiken-Ashi chart tells the story of an ETF that continues to cascade lower, rebounding occasionally only to be rejected by the 50 day moving average. Despite the new lows yesterday, EWZ is not yet oversold and the rate of change is still well above earlier levels that marked near-term lows,” writes Sal Cilella for See It Market.
As See It Market’s chart below illustrates, EWZ has continually commits a significant bearish offense by repeatedly making lower highs and lower lows. Making matters worse is the ETF’s inability to stay above its 50-day moving average. EWZ closed 4.5% below its 50-day line Thursday.
“While it might be tempting to call a bottom and play for a rebound up to the 36 level, for those of us that trade with the trend, signs point to further headwinds for the Brazilian ETF,” adds Cilella.
EWZ’s less-than-inspiring technical situation is equaled by a gloomy fundamental outlook.
“There is going to be a period of difficulty and, before we can see any pick-up, we think 2015, in growth terms, is going to be a horrible year. It is going to be one of the worst for a long time because of the problems it has been having political,” said Jose Cuervo, Santander Asset Management’s head of Latin America equities, in an interview with Citywire Global.
Investors appear unwilling to bet against that assessment. Through Feb. 10, nearly $276 million had been yanked from EWZ. That is more than the combined outflows from the Global X MSCI Argentina ETF (NYSEArca: ARGT), Global X FTSE Colombia 20 ETF (NYSEArca: GXG), iShares MSCI Chile Capped ETF (NYSEArca: ECH) and the iShares MSCI All Peru Capped ETF (NYSEArca: EPU). [Don’t Expect Much from LatAm ETFs in 2015]
ETF Trends editorial contributed to this post.