Japan, Brazil Trade Lower, Deeper into Oversold Territory

While traders and investors are focused largely on the potential for weakness in US stocks as we enter the second quarter, country funds from areas as different as Asia and Latin America have already begun to make serious progress toward extremely oversold levels.

The iShares MSCI Brazil Index Fund ETF (NYSE: EWZ) pulled back for two days in a row before finishing near breakeven levels on Thursday. The latest leg down in the EWZ sell-off is part of a larger correction since the ETF rallied to new, six-month highs at the beginning of March.

EWZ has a short-term, positive edge of just under three quarters of a percent. The stock has earned “consider buying” ratings of 8 out of 10 and 9 out of 10 for the past week, and finished with a 9 out of 10 on Thursday.

Also trading near breakeven levels ahead of the three-day weekend for the stock market, the iShares MSCI Japan Index Fund ETF (NYSE: EWJ) has spent the past two sessions exceptionally oversold. The fund’s latest sell-off has taken the ETF back to the lower boundary of a trend channel that extends back to mid-February, when the exchange-traded fund returned to bull market territory.

EWJ last traded oversold early in the second half of March. A two-day pullback then helped trigger a five-day rally in the Japan ETF, and a gain of more than one and a half percent.

The iShares MSCI Japan Index Fund ETF shares a 9 out of 10, “consider buying” rating with the EWZ, and has a somewhat slighter, short-term positive edge of just over half a percent ahead of trading on Monday.

Closing lower for three days in a row after pulling back by more than half a percent in Thursday’s session was the iShares MSCI EAFE Index Fund ETF (NYSE: EFA). EFA, which tracks global equities excluding both the US and Canada, has spent the past two days in technically oversold territory above the 200-day moving average. The selling in EFA has generated a short-term, positive edge of more than three quarters of a percent, and earned the ETF a one-point ratings upgrade from 8 out of 10 to 9 out of 10.

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David Penn is Editor in Chief of TradingMarkets.com