Traditionally, investing in foreign companies would require certain account privileges and was generally reserved for sophisticated traders. In recent years, with the rise in popularity of exchange-traded products and American Depositary Receipts, average investors can now profit from global shifts in capital. In this article, we take a look at how active traders are keeping an eye out for falling prices in certain markets around the globe such as Brazil, Russia and Germany. (For further reading, check out: 3 Country ETFs for International Investors.)
The broad market pullback in Brazil over the past couple of months has pushed prices of equities in that country below key levels of support such as the 200-day moving average. As you can see from the chart of the iShares MSCI Brazil Capped ETF, the move lower also forced the 50-day moving average to cross below the 200-day moving average, which is referred to by long-term traders as a death cross. This long-term sell signal is commonly used by followers of technical analysis to identify a shift in major trends. Sell orders will likely be placed as close to the 200-day moving average or horizontal trendline as possible in an attempt to maximize the risk-to-reward setup. Stop-losses will most likely be placed above $41.78 in the event that the sentiment toward emerging markets turns favorable once again. (For more on this topic, check out: Invest in South America With These 3 ETFs.)
While many around the world are getting excited about the FIFA World Cup, which will be getting under way in little over a week in Russia, based on the chart of the VanEck Vectors Russia ETF, investors aren't feeling quite as positive. Notice how the recent drop below the 200-day moving average has led to a death cross signal just like the one shown on the chart of EWZ above. This long-term sell signal suggests that the bears are in control of the momentum, and stop-loss orders will likely be set above $21.64 in case of a sudden shift in sentiment. (For further reading, see: 5 Emerging Market Equity ETFs to Watch in 2018.)
The German financial markets are usually looked at by active traders as a barometer of the health of the broader European Union. Taking a look at the chart of the iShares MSCI Germany ETF, you can see that the pattern isn't quite as bearish as the ones shown above, but the defined range below the 200-day moving average does spark some concern that prices could be gearing up for a move lower. Based on the downside bias, we'd expect that traders will likely keep an eye out for a move below the lower trendline, which act as a catalyst to a move lower. (For more, see: 4 Charts That Suggest European Equities Are Headed Lower.)
The Bottom Line
Country-specific ETFs are an exciting development in recent years that give retail investors the opportunity to profit from shifts in global capital. Based on the charts discussed above, it appears as though traders are expecting the uptrends to reverse course over the coming weeks or months in countries such as Brazil, Russia and Germany. (For more, see: Invest In International Markets With These 3 ETFs.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own any of the securities mentioned.