What Today's Oversold Extreme Means for This Investment By Chris Igou, analyst, True Wealth
One market has been ripping higher in 2022... It has happened in spite of the wreckage we've seen in U.S. stocks. The S&P 500 Index is down 9.5% this year. And the Nasdaq has done even worse, down 14.4% to start 2022. Meanwhile, this ignored market has been on a tear. It's up 19.2% to start the year. And despite that huge outperformance, the rally is likely to continue... That's because right now, this market is coming off a rare eight-day rally. And as I'll explain today, this setup points to another 13% move higher over the next 12 months. Here are the details...
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Longtime readers know we always focus on the trend. You want to buy assets when prices are moving in your favor. Still, even knowing that, there are plenty of ways to measure the trend. And one important way to do it is to look at when an asset strings together consecutive up days. This is exactly what it sounds like... It's when an investment rallies several days in a row without a single down day. These unbroken rallies often signal an acceleration of the current trend. So if a stock is moving higher and racks up several up days, more gains are likely on the way. That's exactly what we're seeing in Brazilian stocks right now. After a hot start to the year, this market trend is beginning to accelerate... The iShares MSCI Brazil Fund (EWZ) was up eight days in a row earlier this month. Take a look... Brazilian stocks aren't something most investors pay attention to. And that was for the best last year... The market absolutely crashed to end 2021. It lost around a third of its value from the June peak through the end of the year. But as the chart above shows, EWZ is coming back with a vengeance. Again, the market is up 19.2% in 2022. And Brazilian stocks recently strung together eight consecutive up days. So the new rally is likely just getting underway... Similar setups have been buy signals for investors... often leading to outperformance in the short term. Take a look... Brazil hasn't been a big winner in the long run. It has returned a measly 2.6% since 2000. But don't give up on this global market altogether. You should pay attention to Brazilian stocks when they're gaining momentum (like they are today)... Similar momentum setups have crushed a typical buy-and-hold strategy. History shows a 6% gain in the next three and six months is likely. And investors can expect a 13% gain over the next year. In short, the recent momentum in EWZ is a positive sign going forward. This market has been outperforming so far in 2022... And that's likely to continue. Two decades of data suggest Brazilian stocks are a good opportunity today. If you want to take advantage of it, shares of EWZ offer a simple way to make the trade. Good investing, Chris Igou Further Reading The financial sector in one overseas market might tempt you with low valuations today. But one recent signal shows it's a bad bet today. And a lot of investors are falling for this trap... Read more here. It's a good idea to diversify your investments outside of the U.S. However, that doesn't mean the rally in U.S. stocks is over. Investors are incredibly bearish today – but history shows more gains are likely... Learn more here. |
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