Brazilian ETF shows constructive chart action, giving a bullish outlook for the third quarter, Katie Stockton says

EWZ (iShares MSCI Brazil ETF) is framed as a tactical rebound: after a Q2 correction, recent weeks show oversold weekly stochastics turning up and improving momentum, with a rebound that reclaimed the 200-day moving average. Resistance levels are cited near $36 (50-day MA/daily cloud) and $42 (2021 peak), while support for the cyclical bull trend is aligned near $34. The article also highlights PBR (breakout above 50-day MA to ~$19.80; support ~$16) and ITUB (resistance ~$9.60; support ~$8), with a crude/commodity bounce described as a tailwind for broader Brazilian cyclicals.

Analysis

This looks less like a new fundamental thesis and more like a forced unwind of bearish positioning in a high-beta EM proxy. If EWZ can hold above its reclaimed long-term trend markers, systematic flows should turn from seller to buyer, which matters because Brazil baskets are thin enough that momentum funds can move the tape over the next 2-6 weeks. The biggest second-order beneficiary is not the commodity complex itself but local financials: when Brazil risk compresses, banks typically get the cleanest multiple expansion because funding fears and credit-loss assumptions ease faster than earnings estimates.

The main risk is that this is a tactical bounce inside a still-fragile global macro regime. A stronger dollar, weaker China demand, or a relapse in crude would likely hit Brazil twice: directly through commodity beta and indirectly through sentiment/FX, which would cap any rebound in both PBR and EWZ. For PBR specifically, the upside is inherently constrained by policy risk and capital-allocation skepticism, so the market may only pay for the chart until investors demand proof in cash returns and dividend durability over the next 1-3 months.

The contrarian read is that the market is probably underestimating how much of the move can be self-reinforcing once weekly momentum turns up, but overestimating how durable the earnings impact will be. That makes this better as a trade on relative strength than as a structural long: Brazil can outperform broader EM for a quarter without becoming a clean multi-year compounder. What would falsify it is simple: EWZ slipping back under reclaimed trend support, PBR failing to hold its breakout zone, or ITUB rolling over as credit-quality data worsens despite the technical bounce.

Key Decisions for Investors

• Long EWZ on any retest of the reclaimed 200-day area; target the prior resistance band near the 2021 peak over 1-3 months, with a tight invalidation below the trend-support zone. Best as a tactical momentum trade, not a core allocation.
• Pair trade: long EWZ / short EEM for 6-10 weeks to isolate Brazil-specific momentum and commodity-beta outperformance if the rebound broadens. Falsify if EM leadership shifts back to Asia or if Brazil loses its relative trend.
• Long PBR via call spread or equity with a defined stop under the oversold-recovery base; use it as a high-beta expression of crude stabilization, but size smaller than EWZ because policy risk can cap multiple expansion quickly.
• Long ITUB only as a relative-value bank expression versus weaker EM financials, not as a standalone macro bet. Hold for 1-3 months; thesis breaks if Brazil credit spreads widen or loan-loss guidance deteriorates.
• Set an alert for a reversal in Brent and USD strength; if oil rolls over and the dollar resumes bid, reduce or exit Brazil longs quickly because the technical setup is more fragile to FX and commodity shocks than the chart implies.