Big Trouble in Latin America as Leading Funds Turn Lower

For all the focus on China and Europe, traders may be more interested in the market moves in regions like Latin America and smaller Asian nations like South Korea and Malaysia.

Trading in bull market territory for most of 2012, the iShares S&P Latin Amerca 40 Index Fund ETF (NYSE: ILF) are now trading just above their 200-day moving average after closing lower for three out of the last four sessions. This includes the ETF’s Wednesday drop of nearly three-quarters of a percent, which took ILF to near oversold levels on the close.

ILF still has neutral, 5 out of 10, ratings as of Wednesday’s close, and even has a modest, negative edge of just under a quarter of a percent. Should the fund continue lower over the balance of the week, this negative edge in ILF, at a minimum, is likely to change to the positive.

Two other country fund ETFs for short term traders and active investors to consider adding to their watch lists are the iShares MSCI Malaysia Index Fund ETF (NYSE: EWM) and the iShares MSCI South Korea Index Fund ETF (NYSE: EWY). EWM has been rangebound since early February, shortly after the ETF returned to bull market territory.

Ahead of trading on Thursday, shares of EWM have neutral, 5 out of 10 ratings but unlike ILF, EWM has a small positive edge of a quarter of a percent. Down three out of the last four trading days, EWM is likely to cross into technically oversold territory on any significant selling over the balance of the week. And should the fund do so, higher ratings and more positive edges are likely to follow.

Shares of EWY have traded similarly to EWM this year: both stocks slipped into sideways trading ranges shortly after climbing above their 200-day moving averages earlier in the year in late January, and have of late pulled back for three out of four sessions. EWY shares a small negative edge with ILF, also despite recent selling pressure, and has a neutral rating of 5 out of 10 ahead of trading on Thursday.

One note with regard to ILF and Latin American stocks. One of the more popular Latin American ETFs, the iShares MSCI Brazil Index Fund ETF (NYSE: EWZ) is very oversold, but has been trading beneath its 200-day moving average for more than a week. Trading at neutral levels in bull market territory is the iShares MSCI Mexico Index Fund ETF (NYSE: EWW), which has finished lower for three out of the most recent four trading days.

Click here to read the first chapter from the updated 2nd Edition of How Markets Really Work by Larry Connors and Cesar Alvarez.

David Penn is Editor in Chief of