Check Out The Chart: Broken Brazil

Oh boy, there was a time, and we're not far removed from it, when Brazil was an emerging markets darling and U.S. investors just could not get enough of Brazil-specific ETFs. The crown prince of the nearly 70 ETFs offering Brazil exposure is the iShares MSCI Brazil Index Fund EWZ. With over $11.7 billion in assets under management and average daily volume of nearly 14.3 million shares, EWZ is the largest and most liquid ETF offering exposure to Brazil or any Latin American destination for that matter. Well, check out the chart because the crown prince has turned into a court jester. The choice of EWZ as today's “Check Out The Chart” candidate is well-timed because, as Bloomberg News reports, Brazil's benchmark Bovespa Index traded down by as much as 3.6% today, good for the biggest one-day slide since June 2010. That comes after the Bovespa slid into bear market territory last month, plunging 20% from its November 2010 peak. Even worse for EWZ is that the RSI indicator on the chart shows the ETF is not yet oversold, underscoring the notion that more pain could be on the way. Part of the pain is easy to explain and it comes from deteriorating fundamentals in Brazil. Eight interest rate hikes in the past 15 months have done little to dampen inflation. Add to that EWZ's exposure of more than 18% to Petrobras PBR securities and Sau Paolo, we've got a problem, because it's hard to find a worse-performing big oil stock in the past year than Petrobras. Vale VALE, the world's largest iron producer, accounts for another 16% of EWZ and that stock has been no peach either as investors have fretted about Chinese economic growth slowing. That leaves EWZ trading less than 6% of its 52-week low. Even the comparable China-specific ETF is further removed from that dour level than EWZ is and to find a BRIC ETF that is closer to its 52-week, investors would need to (but they probably should not) take a look at the WisdomTree India Earnings ETF EPI. Today, EWZ is trading below $67 for the first time in about a year and smacks more of value trap than value. The allure of Brazil is compelling and understandable, but investors looking for value with EWZ would do well to wait until the ETF falls into the low 60s, say the $62 area, before seriously considering even small positions. The chart says as much. Check it out.