Brazil Has a Wedgie

If you had 2 mischievous and devious brothers like mine you might be wondering how a country can have uncomfortable, bunched underwear. You might also be in need of therapy to rid yourself of the scars of their pranksBut, alas, I digress. In this case the wedgie I refer to is the rising wedge pattern that has developed in the Brazil stock market proxy, EWZ.

As you can see in the daily chart below EWZ has broken down from a perfect 5-touch rising wedge and currently sits on important horizontal support. I think this has a lot more downside if we get a confirmed move below support as this breakdown has occurred after the formation of bearish momentum divergence. If you are short Brazil’s stock market like me, it is important to know ahead of time where likely reversals may occur, a logical place to exit your short position. The pattern’s conservative first target is the $28.50 area, some 11% lower than where we closed yesterday. If the market doesn’t find support in that area and gathers some steam to the downside, the next likely target is the $26 area. This sane area is a very important level as it represents a confluence both a pattern target and the 200 day moving average.

As of right now and because EWZ is still in a defined uptrend on both the daily and weekly time periods we need to give the benefit of doubt to the bulls and view this breakdown as nothing more than a normal corrective pullback. But future events can always change the tide and as such we always need to keep an open mind and adapt to what the market gives rather than what we want or expect.

If this pattern works out as expected and there is interest, I have saved a couple of other relatively unknown “technical” patterns the noogie and wet willy (my oldest brothers personal favorite) for later.