Rising from the ashes of a steep bear market this past week was the Brazilian stock market with the iShares MSCI Brazil Capped ETF (EWZ – 45.29) posting a gain of almost 7%. This is the best showing for EWZ since late November 2011. The enthusiasm seems to have stemmed from a stronger than expected GDP number that came out on Thursday. The bear argument is that the majority of stocks in Brazil do not appear to have near term favorable prospects despite this last week’s bounce. When there are bullish and bearish fundamental arguments that make sense it is time to call in the technicians and consult a chart. The price chart below is EWZ in 2013.
There appears to be some strong support developing for EWZ around 41.00, the next leg down and confirmation for the bears would be EWZ in the high 30’s.
Checking the volatility of EWZ shows that despite the great week, the Brazilian market has contrasting opinions throughout the rest of 2013. VXEWZ dropped over 8% but is still close to 30.00. Also, the curve (or lack of curve) is very flat. If it has that contango type shape of a ‘normal’ market then I would be saying it appears the volatility players believe the bottom is in for EWZ. However, the fundamental debate that is valid for a bear or a bull seems to be depicted in a flat VXEWZ curve.
The other emerging markets did well last week with the iShares MSCI Emerging Markets ETF (EEM – 39.97) rising 5%. Brazil contributed to this rise as well as a strong Chinese market. VXEEM dropped about 7% based on this performance. The interesting part of the volatility equation is again in the curve. VXEEM and VXEWZ are both flat and on the fence about what is up next. There is a tug-of-war between bulls and bears with the volatility markets not taking a side yet.