Diary of a Financier

South Africa ETF Heading Further South

In Capital Markets on Tue 25 Jan 2011 at 08:39
  • Waiting for an entry to short EZA, probably via long puts.
  • EZA should snap back up to $71-72 range before starting its ultimate descent.

One day in late 2011, I’ll buy the iShares MSCI South Africa ETF (EZA) and hold it long term with blinders on, because I know that in the near future it’ll explode to the upside.  (A 2.64% dividend doesn’t hurt either.)  Today is not that day, however.

Having been burned by premature convictions in the past, economists & traders have long awaited the African emergence.  My Mom even noticed Wal-Mart (WMT) snatching up its South African counterpart, Massmart, at the end of 2010.  Normally, I’d avoid the hype and ritualistic chants of ‘it’s different this time,’ but with the developed world having overextended to pull-forward growth, I do believe that emerging markets will be tapped to quench global GDP expectations in the first half of this decade.  Particularly in this age of financial commoditization & monetization, I [unfortunately] see Africa as a perfectly impressionable subject for financiers’ artful craft.

But first, EMs will have to undergo a setback, because hot money fled G7 nations and washed up in EMs to hide from the latter stages of this Great Recession.  EZA is headed lower, and I’m comfortable shorting it with conviction:

EZA weekly- teetering on the brink of breaching 1st support @ $68. Technical indicators are headed down to test their key thresholds, indicated with pink support lines.

 

EZA daily- support around $68.15 is holding fast, as the stock rested on it at the close 1/20 & 1/21. Technical indicators have already confirmed the downside.

 

I expect a snap-back up to the $71-72 range before the weekly chart has had enough time to coordinate with the shorter term charts and confirm the bearish reversal.  That’s when I’ll enter a short-biased position.  I do not want to commit too much capital to this trade, since I rarely outright short a holding without a relative-strength-paired long as protection.  Even though I’ve been spot-on this Emerging Markets inflation & underperformance du jour, I really don’t care to outright short something when I could be deploying capital to bull market trends around it (developed markets).  In the end, I’ll probably play it by buying puts.

I’ll post on any trades if they come to fruition.

–Romeo

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