Latin America refers to the group of countries that comprise the central to southernmost parts of the Western hemisphere. The emerging economies, diverse populations and cultures, and an overall abundance of natural resources make the region of specific interest to investors looking to diversify their portfolios outside of the major markets. In the paragraphs below, we'll examine the charts and try to determine how traders will be looking to position themselves over the weeks or months ahead.
iShares Latin America 40 ETF
As the name suggests, the iShares Latin America 40 ETF (ILF) provides investors with targeted exposure to Latin American stocks. More specifically, the fund comprises 41 holdings from across Brazil, Mexico, Chile, Peru and Colombia. The fund is heavily geared toward the financial, energy and materials sectors with weightings of 40.95%, 15.13% and 14.66% respectively.
Taking a look at the chart, you can see that the fund has been trading within a defined range over much of the past year. The recent break beyond the resistance of the upper trendline is a clear indication that the bulls are in control of the momentum. Based on this pattern, active traders will now likely be setting their target prices near $38, which is equal to the entry point plus the height of the pattern. Stop-loss orders will likely be placed below either the 50-day or 200-day moving averages, depending on risk tolerance.
With 62.57% of the ILF fund coming from Brazil, it wouldn't be surprising to see active traders focus their attention on this sector by adding a position in targeted funds such as the iShares MSCI Brazil Capped ETF (EWZ). Taking a look at the chart, you can see that the price has recently broken out of a well-formed cup and handle pattern. This bullish chart pattern is a favorite among active traders because of the clear buy and sell signals that are generated from moves beyond the identified trendlines.
In this case, the breakout above the handle following a bounce from its 200-day moving average was a clear signal that the bulls were readying for a sharp move higher. The recent close above the upper trendline and short period of consolidation now suggest that the price is gearing up for the next leg higher. Stop losses will most likely be placed below $40.95 in case of a sudden shift in momentum.
With the recent rise in the price of various metals such as copper, some active traders may want to take a look at investments in Chile or Peru given their significant expertise and exposure. As you can see from the chart of the iShares MSCI Chile Capped ETF (ECH), the price has recently been able to move beyond its 200-day moving average, which is a common long-term level of resistance that highlights the direction of the underlying trend. If the pullback toward the newly formed support is able to hold, current levels would be an ideal spot to buy given the clearly defined risk-to-reward scenario.
The Bottom Line
The region of Latin America hasn't really received much in the way of positive media attention in recent weeks. However, given the charts mentioned above, it appears as though active traders will be well suited to ignore the news stories and look at add some exposure to their portfolios by trading the patterns mentioned above.