It Could Be A Big Day For The Brazil ETF

One of the most derided exchange traded funds in these parts is the iShares MSCI Brazil Capped ETF (NYSE:EWZ). The largest Brazil ETF has given market participants of all stripes plenty to be critical off, but in the essence of fairness, it should be noted that EWZ has surged 10.3 percent in the past week.

That run could continue on Thursday following a Reuters report out late Wednesday that notes Brazil's Federal Accounts Court "ruled that Rousseff's government manipulated its accounts in 2014 to disguise a widening fiscal deficit as she campaigned for re-election."

As Reuters reported, that ruling is not legally binding, but it does pave the way for President Dilma Rousseff's many opponents to possibly move to impeach her. The impeach Rousseff theme has been highlighted here in recent weeks.

On August 17,Benzinga reported, "long bets on EWZ have not been rewarded and positive catalysts have been nearly non-existent, but one might be looming. Brazil is awash in protests with participants calling for President Dilma Rousseff to be impeached. That makes sense. Rousseff is seen as at the heart of a wide-ranging corruption scandal at Petrobras (NYSE:PBR), one of EWZ's largest holdings. Plus, Brazil is mired in its worst economic slump in over two decades."

Reuters said, "In the ruling on Tuesday, Brazil's top electoral authority said there were grounds to investigate her re-election campaign, including the suspicion of illegal funding from kickbacks involving oil firm Petrobras. Rousseff served as chairwoman of the board of Petroleo Brasileiro SA, as Petrobras is formally known, from 2003 to 2010 when much of the alleged graft took place. She has denied knowing of or benefiting from the graft."

Now, here is the rub. Even if momentum for impeaching Rousseff, something this writer suggested on Twitter should happen, increases, it could take awhile. Or it might not happen at all.

That means the impeach Rousseff trade as it pertains to EWZ is a short-term trade until proven otherwise. Remember, as impressive as EWZ's 10.3 percent five-day rally, the ETF is still off 33.5 percent year-to-date.

That said, it certainly is not good news for Rousseff that the court did not take impeachment off the table. Worse yet for her, the ruling came less than a month after Standard & Poor's downgraded Brazil's sovereign credit rating to BB+ from BBB-, becoming the first of the major ratings agencies to slap a junk rating on Latin America's largest economy.

Some traders were prepared for good news for EWZ. Since the start of September, EWZ has added $50.6 million in new assets. Over the past 30 days, EWZ's triple-leveraged counterpart, the Direxion Daily Brazil Bull 3x Shares (NYSE:BRZU), has average positive creation activity, according to Direxion data.