Macro Monday 46 - South America Indexes Signaling Major Trend Macro Monday 46
Emerging Chart Trend in South America and Brazil
Brazil is the largest economy in South America, followed by Argentina, Chile, Colombia, and Peru.
These 5 countries together hold a huge 90% share of the South American economy.
Today we will look at index charts for South America and Brazil to get an overall initial technical picture from a price standpoint of the aggregate in these regions.
IShares Latin America 40 ETF - AMEX:ILF
The iShares Latin America 40 ETF (ILF) is a collection of the 40 largest Latin American equities by market cap.
The index is heavily weighted in Financial Services which makes up 33% of the Index. Basic materials form 19% and Energy makes up 15% of the Index allocation. Interestingly NUBank NYSE:NUS has a large c.6% holding within the index. This is a stock I hold that has performed incredibly well and I have shared many bullish charts on NU. Incredible that a relatively New Bank has grown large enough to make it into the top 5 holdings here.
The Top 5 companies in the ILF Index are:
1. Vale S.A. NYSE:VALE : 9.3% Allocation. This company is a global leader in iron ore production and the second-largest nickel producer (Basic Materials).
2. Petróleo Brasileiro S.A. - Petrobras NYSE:PBR : 7.6% Allocation. Known as Petrobras, this is a multinational corporation in the petroleum industry (Energy).
3. Itaú Unibanco Holding S.A. $ITUB. 6.5% Allocation. Itaú Unibanco is one of the largest banks in Brazil, providing a range of financial products and services (Financial Services).
4. Nu Holdings Ltd. NYSE:NU : 5.84% Allocation. Nu Holdings is a financial technology company that offers banking services and is known for its digital banking platform, Nubank (Financial Services).
5. Grupo Financiero Banorte, S.A.B. de C.V. SKILLING:GFNORTEO.MX : 5.36% Allocation. Banorte is one of the largest and most prominent financial institutions in Mexico (Financial Services)
The Latin America 40 ILF Char
SUBJECT CHART ABOVE
What jumps from this chart?
▫️ Firstly we appear to forming a long term pennant style flag from which a break up is more likely than a break down.
▫️ We have been rejected from the upper diagonal line repeatedly and if we break above this line it would be a very good indication of an initial trend change.
▫️ We have dashed underside diagonal support line warns of lower prices if broken (historically has been useful).
▫️ We are above the 200 week SMA at present and we are challenging the PointOfControl (POC) Line.
Summary South America 40 Index
As this is a long term pennant style flag from a major increase in price action in the early 2000’s, a break above the long term diagonal resistance line would be a major signal of the beginning of a new bullish trend, keep in mind that such a price move would also demonstrate a break above POC (strong trading range to hold as support). We need to watch the diagonal underside support line (dashed line) for a break lower which would be an indication of significant weakness. Either direction will give us a good signal of how the largest companies in Latin America are performing and by extension South America.
Now lets look at the largest performing country in South America, Brazil.
Brazil
Brazil is the 8th largest economy in the world and the only country in South America to make it into the top 10 world’s economies.
Brazil is the top contributor to South American nominal GDP accounting for 61% of the increase in the South American economy (Int. $264 bn). In 2nd and 3rd place are Colombia (Int. $50 bn) and Peru (Int. $25 bn) with much lower contributions.
Brazil’s Gross Domestic Product (GDP) for the year 2023 grew 2.9% and is expected to grow by c. 2% in 2024, lower is anticipated mainly as a result of the delayed effects of monetary tightening.
Brazil is considered a key financial center for South America. It has the largest economy in the region and is home to a number of significant financial institutions and stock exchanges. São Paulo, in particular, is recognized as the financial capital of Brazil and is a primary hub for international business activity in the country. Brazil is also a leading producer of a host of minerals, including iron ore, tin, bauxite (the ore of aluminum), manganese, gold, quartz, and diamonds and other gems, and it exports vast quantities of steel, automobiles, electronics, and consumer goods.
iShares MSCI Brazil ETF - AMEX:EWZ
The iShares Brazil ETF (EWZ) seeks to track the investment results of an index composed of Brazilian equities. The ETF tracks a free float-adjusted market capitalization-weighted index designed to measure the performance of the large- and mid-capitalization segments of the equity market in Brazil. All this means is that Larger companies have a bigger impact on the index’s performance.
The index is heavily weighted in Financial Services which makes up 25% of the Index. Energy at 22% and Basic materials at 16.6% of the Index allocation are 2nd and 3rd after Financial Services.
The Top 5 companies in the ILF Index are:
1. Vale S.A. NYSE:VALE 3.SA : 11.3% Allocation. This is a mining company and one of the largest producers of iron ore and nickel in the world (Basic Materials)
2. Petróleo Brasileiro S.A. - Petrobras $PETR4.SA & $PETR3.SA: 10.1% Allocation. Commonly known as Petrobras, this state-controlled company is involved in the energy sector, primarily focusing on the exploration, production, and distribution of oil and gas (Energy).
3. Itaú Unibanco Holding S.A. $ITUB4.SA: 8.3% Allocation. Itaú Unibanco is one of the largest financial conglomerates in the Southern Hemisphere (Financial Services)
4. Banco Bradesco S.A. $BBDC4.SA: 8.0% Allocation. This is another major player in the Brazilian financial market, offering a wide range of banking and financial services (Financial Services)
5. WEG S.A. $WEGE3.SA: 3.5% Allocation. WEG is an industrial company that operates globally in the electric engineering, power, and automation technology areas (Industrials).
The EWZ Chart
What jumps from this chart?
▫️ Firstly we appear to forming a long term pennant from which a break up is more likely than a break down IMO.
▫️ We have been rejected from the upper diagonal line repeatedly and if we break above this line it would be a very good indication of an initial trend change.
▫️ We have dashed underside diagonal support line warns of lower prices if broken (historically has been useful).
▫️ We have yet to break above the 200 week SMA and we are challenging the PointOfControl (POC) Line.
Summary Brazil Index
A break above the long term diagonal resistance line would be a major signal of the beginning of a new bullish trend, keep in mind that such a price move would also demonstrate a break above POC (strong trading range to hold as support). We need to watch the diagonal underside support line (dashed line) for a break lower which would be an indication of significant weakness. Either direction will give us a good signal of how the largest companies in Brazil are performing and by extension South America (as Brazil is thee major contributor to South America.
Overall
Overall IF the Latin America ETF and the Brazil ETF break out of their respective pennants to higher levels and find support prior diagonal resistance lines, the 200 weekly SMA, and the POC, this could indicate a bullish trend in South America for years to come. It would then be worthwhile to then look at companies within Brazil and South America for trading and investing opportunities.
All these charts are available on my Tradingview Page and you can go to them at any stage over the next few years press play and you'll get the chart updated with the easy visual guide to see how the South America market has performed. I hope its helpful.
PUKA
ILF trade ideas
Latin America - Go With StrengthAmong the leaders in country index funds this week, ILF soared more than 9%. Top equities here are miners and banks, two of the best performing industries, especially in the last week. In general, markets are poised for a positive move. SPX appears poised to test the 40 week moving average some 9% higher at 4100. ILF has potential to touch the 31 level, nearly doubling SPX's return.
LATAM is coiling - potential multi-year moveJust an odd observation that LATAM is robustly holding up, and appears to be coiling for a triangle breakout.
NOT ready yet, but ahead of the curve, and technically appears to have some potential. Alert levels set... keep an eye on this.
Anyone knows why LATAM might be forming up??
Do share your views pls...
The two most interesting macro chartsI find these two charts absolutely fascinating right now in the face of the geopolitical changes happening. This idea stems from a pretty simple question: Who stands to benefit the most should supply chains need to be retooled because our current providers fail?
If the economy in China implodes due to civil unrest or a structural change in CCP/PRC leadership, where will the globe look to in order to replace that gap? Latin America and/or Africa.
Yes, I know there's a shit load of assumptions, leaps in logic, etc. in this. I could write a novel on the mechanics of how this could theoretically play out. But just for a moment, think about it. We trade one cheap labor for another. We already have well-established supply chains in Latin America. We have geopolitical leverage over them and have been willing to push heavily to influence elections. Who knows.
Anyways, again, I thought the charts were just so interesting in the wake of a sea of other charts that suggest things are just getting warmed up.
The $ILF and $EZA are the most interesting macro charts to me right now.
ILF Latam not ready to break out....yetLatam, much like the rest of EM, does not seem ready to break out yet and has failed to break the downtrend in place since '08. However, the up leg from March '20 to Jun '21 seem to be and impulse wave of what could be Wave I or the beginings of a spectacular rally in the years to come if a new commodity supercycle keeps going. ILF is currently correcting and likely to see lower levels in the short term, but the area of $19.50 to $24 could prove to be a good acumulation zone to position for the years ahead.
Latin America 40 to the rescue?! A look at ILF.I'm scouring planet Tradingview to look for bullish signs. Let me tell you, it hasn't been easy. So I wandered out of the country to see if the rest of the world is doing as poorly as our domestic markets in the U.S. appear to be. Alas, I present you with ILF, the iShares Latin America 40. It's been getting bombed out for 9 months now, and according to the regression channel it has broken upwards and has closed there long enough to imply a valid bottom has formed. As you can see from the volume, it also indicates something in the trend is changing. The MACD is above 0 for the first time in a very long time as well. Is it a go? If you're aggressive, sure. If you're a little more shell-shocked from recent market moves you can wait to see if it passes above $25.50, which would be a very solid indication the trend has indeed reversed and won't bear flag on you. I'm in the latter group at the moment.....mostly because I have my tail between my legs from some growth stocks that crapped the bed recently. I'll go long when it's above $25.50 just to make sure I don't get whipsawed yet again.
Latin America - the multiyear perspectiveJust by chance, the Latin America ETF (ILF) was noted to be doing very well this week as the S&P500 and friends are given a beating. In a bigger picture perspective, a descending triangle has been formed in the last 12 years. While the upside to resistance may be smaller than previously, it is also projected that IF and WHEN there is a breakout, Latin America would do a multiyear climb to 2.5X of what it is today.
Technicals are just turning around, including a very bullish weekly candlestick last week, with MACD turning bullish.
Overly optimistic or an amazing opportunity?
I am not well versed in emerging markets, particularly Latin America.
Do share your thoughts...
Latin American Equities Relative To The S&P 500Chart 1: Latin American Equities relative to the S&P500: Attempting to arrest a multi-year decline as it builds a small base neat the Oct-2001 & 2002 swing lows.
Latam has lagged big-time, so could be a place to dig for opportunities over the next few years.