$EWZ might be near the bottom

Are the Emerging Market’s names like $EWZ ready to revive?

$EWZ had a roller coaster in 2018 as corruption, oil prices and general political discontent weighed heavily on the Brazilian ETF.  $PBR plays a big role in that as an example of how not to run an oil company for the common good but for the good of a few.  Generally the $EWZ and $PBR move together so the fall from grace hits Brazilian equities all at once in a crisis.

The question is when it will end?  The last tell was about 2 years ago when S&P declared Brazilian debt risky when $EWZ was $18 or so.  I don’t think we will get that lucky again.  The bottom could be simpler as we just need $EWZ to get out of the news and do the boring things that countries do when they are trying to rebound.  First the ETF has to stop moving so much.


Realized vol snap from TradeHawk/Tradier

$EWZ, as is $EWW for Mexico, is in the bottom percentage for realized volatility over the last 5 days.  Stocks need to stop moving at some point and these two are starting to do that.  $EWZ still has some real implied volatility as the hangover lingers for market participants.  With oil, and $PBR, recovering a bit we should see higher prices for $EWZ.  That is not an overnight trade.

There is some premium to sell in $EWZ and rising oil price should help this $ETF the most for Latin America beside $EWW. The implied volatility in $EWW is not very interesting with the ETF mostly unchanged for the year.  A trade could be selling put spreads in $EWZ and buying strangles in $PBR in case oil decides to take off.  We can set up the trade for a close to premium neutral backspread with a real opportunity to launch if the deck clears.  At best the trade sets up for a scratch if $EWZ gets back to its old ways and $PBR is sub-$10 again.

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