For centuries, South American nations have dominated the commodities markets when it comes to the exploration and production of metals. Both precious and base metals are abundant in nations such as Brazil, Peru and Chile, which is why many active traders keep a close eye on their financial markets in hopes for clues about future price movements. In this article, we take a look at several charts that track the abovementioned markets and try to determine how traders will choose to position themselves over the weeks or months ahead. (For a quick refresher, check out: These 3 ETFs Suggest Commodities Are Headed Lower.)
One of the world leaders when it comes to base metals such as copper is Chile. As you may know, the economy is closely tied to global investment in infrastructure and the resulting demand for the industrial metal. Taking a look at the chart of the iShares MSCI Chile Capped ETF (ECH), which is a common barometer for spot coper prices, you'll notice that the price is currently testing the resistance of the 50-day moving average (shown by the red arrow). This long-term moving average is a common indicator that is used for determining the placement of buy and stop orders. The recent break below the 200-day moving average (shown by the red circle) is a common long-term sell signal known as the death cross and is usually used to mark the beginning of a long-term downtrend. The struggle to move higher over the past several months combined with the recent sell signal suggests that the bears are in control of the momentum and that a move lower could likely be in the cards. (For further reading, see: 3 Country-Specific ETFs That Look Poised to Move Lower.)
Peru is another South American nation that is commonly looked to by active traders because of its exposure to base metals. Again, like the chart of ECH shown above, the chart of the iShares MSCI All Peru Capped ETF (EPU) shows that the 50-day moving average has recently crossed below the 200-day moving average, which suggests that the bears are in control of the momentum. Based on the pattern, traders will likely set their target prices near $36.36, which was the low from December 2017. (For more on this topic, see: International Investors Will Want to Look at These 3 ETFs.)
Lastly, the largest of the South American nations that has strong exposure to both precious and base metals is Brazil. By taking a look at the weekly chart of the iShares MSCI Brazil Capped ETF (EWZ), you can see that the price is testing a major level of resistance shown by the horizontal trendline. The long-term trendline has consistently been used by active traders over the past couple of years for setting the placement of their orders. Based on the confined trading range shown on the chart, technical traders will likely expect the resistance to hold and prevent the bulls from sending the price higher. (For more, see: Charts That Suggest Bears Are Taking Aim at Commodities.)
The Bottom Line
South American nations have strong exposure to both precious and base metals, which makes the markets key leading indicators used by active traders for determining major price movements. Based on the charts shown above, it appears as though the falling commodities of late could be more than a glitch and could actually be pointing to a structural move lower. (For further reading, see: 3 Country ETFs for International Investors)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.