To put it delicately, the fundamental outlook on Brazilian equities has been murky at best this year.
Brazil's benchmark index, the Ibovespa, has been one of the worst-performing major global benchmarks this year as a plunging real, slack commodities demand and anti-government protests have plagued Brazilian stocks.
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The iShares MSCI Brazil Capped ETF (NYSE:EWZ), by far the largest and most heavily traded Brazil ETF, has suffered as a result. Heading into Tuesday, EWZ was down almost 22 percent year-to-date, making it the worst performer among the four major single-country funds tracking the BRIC nations.
To be fair, EWZ has significantly improved over the past few weeks and at least one noted technical analyst sees a favorable set up emerging in the highly popular ETF. Not including Tuesday's gains, EWZ is up 3.4 percent in the past month and a stunning 7.4 percent in the past two weeks.
Chris Kimble of Kimble Charting Solutions says that EWZ is "at the bottom of its falling channel and created a bullish falling wedge and is breaking above resistance."
For those that are not technical analysis experts, Kimble offers this translation: "Relative momentum (in EWZ) is deeply oversold at levels where some rallies have taken place in the past." EWZ's relative momentum index is hovering in the 15 to 20 area, indicating the ETF is in fact oversold.
The last time EWZ was this deeply oversold was in early October 2011 when the ETF was trading around $51. On October 28, 2011, EWZ closed at $64.51 before settling around $62.40 at the end of the month.
Kimble's analysis shows that EWZ was also similarly oversold in the first quarter of 2009 as the global financial crisis was working through its final stages. EWZ bottomed around $33.50 just a few days prior to the March 9, 2009 market bottom and by early May, the fund had surged almost 53 percent.
Kimble points out that another period of oversold levels this bad appeared early in EWZ's life back in late 2002. EWZ was deeply oversold early in the fourth quarter of that year, trading around $6 in October. Those with the fortitude to have made EWZ a somewhat long-term investment were rewarded as the ETF doubled in 10 months.
EWZ's technical outlook could certainly be bolstered if Brazil's questionable economic fundamental's improve. At the very least, Petrobras (NYSE: PBR) and Vale (NYSE:VALE), a combined 20.5 percent of EWZ's weight, need to keep chipping in on the ETF's upside. Petrobras, Brazil's state-controlled oil giant, and Vale, the world's largest iron ore producer, are up an average of 8.25 percent in the past month.
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