Brazil ETF (EWZ) Nears 20% Correction Again

I last wrote about the Brazil Index Fund ETF (EWZ) at the end of the sharp correction in October. At that time, the big headline was that EWZ had lost all its gains from the Olympics-driven rally, and I was anticipating buying EWZ at the end of a total correction of 20% from the closing 52-week highs. The 50-day moving average (DMA) held, and EWZ rallied to make new 52-week and 16-month highs.

This time, EWZ has returned to those October lows with a more ominous stock chart. 11 out of the 16 trading days in 2010 have been down days. Until this week, selling volume was steadily increasing. EWZ is down 10% for the year, much worse than the S&P 500’s 2% drop year-to-date. The chart below explains the current technical setup.


Has EWZ topped out?
Has EWZ topped out?

*Chart created using TeleChart:

I remain interested in buying EWZ on a successful test of the 200DMA (the first such test since the rally off the March). However, the potential head and shoulders topping pattern tempers my expectations for near-term gains. I have already bought back into Tele Norte Leste Participacoes S.A. (TNE) as it tests its 200DMA this week (chart not shown).

Be careful out there!

Full disclosure: long TNE

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