While many markets are still recovering from the Brexit fallout, some escaped the liquidation virtually unscathed. In fact, last week’s drop and pop episode was a revelator of sorts. Relative strength was on full display in a few names able to maintain their uptrends, while everything else was being dragged behind the woodshed. Chief among the leaders is the iShares MSCI Brazil Index (ETF) (NYSEARCA:EWZ).
Indeed, the Brazil ETF popped to new 52-week highs amid the recent market rebound. An in-depth survey reveals the tides are turning. Brazil bulls have established a foothold and are pressing their advantage. Consider the highlights:
First, EWZ sits firmly in bullish territory atop all major moving averages. With these potential barriers cleared, the stage is set for further upside.
Second, the 200-day moving average is now trending higher for the first time in two years. The prolonged bullish action in EWZ has been sufficient to drag the slow moving average higher showing the trend may well have staying power.
Third, momentum indicators such as the RSI (displayed in the lower panel of the accompanying chart) have been frolicking in the bull zone for almost the entire year.
Last week’s upward pivot was accompanied by a higher uptick in the RSI, showing increasing momentum for EWZ’s budding uptrend.
Yesterday’s hammer candle is flashing a bullish signal that the dip in this Brazil ETF may well have run its course. If you think the trend continues, this is as good an entry as any.
The EWZ Brazil Trade
The cheaper price tag of EWZ lends itself nicely to a naked put trade. The margin requirement is minimal, which boosts the potential return on investment.
Consider selling the Aug $27 put for around 64 cents. The max reward is limited to the initial 64 cents and will be pocketed if EWZ sits above $27 at expiration. Currently, the options board is pricing in about a 76% chance of success.
By selling the put, you obligate yourself to buy shares of EWZ at $27 if the puts sit in-the-money at expiration. If you’re a willing buyer down there, consider allowing assignment if EWZ tumbles over the coming month. Otherwise, close the trade if the ETF breaks key support at $25.
At the time of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.