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
