What a difference three months makes.
On May 18th, I wrote “Trading Panic: Rushing Past the Exit from Brazil” to explain why I bought the big dip in iShares MSCI Brazil Capped ETF (EWZ) after Brazilian President Michel Temer was accused of bribery. I greatly under-estimated the upside opportunity at the time, and I find myself with no position on as EWZ continues a convincing turn-around with a breakout above a years-long downtrend.
My clue should have come on June 26th when Temer was officially charged with corruption. EWZ barely budged and did not even come close to challenging the May low. That trading action was an early sign that the market was beginning the process of forgetting; it was a classic opportunity to buy the dip preceding the charges. So when (on August 2nd) Temer trounced his political opponents by convincing Brazil’s lower house of Congress to block a corruption trial, EWZ was already close to finishing a complete reversal of May’s gap down. Today’s breakout is now the continuation of the momentum that was in place before the bribery scandal broke.
My key lesson here is to stay closely attached to stories that have such a dramatic impact on trading, especially when I appear to have made the correct call on the ultimate resolution! Since I assumed EWZ would remain weakened and would offer at least one or two more buy-the-dip opportunities, I was far too slow in updating my technical assessment. The post-bribery high on a gap up and breakout above BOTH the 50 and 200-day moving averages (DMAs) on July 12th should have served as my last boarding call.
Full disclosure: no position