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Brazil as a short side? Maybe time to close this while you can

September 10, 2012

10 September

I have had another look at this Goldman Sachs v iShares Brazil trade.

In looking for trades that fit certain criteria (in this case Bollinger Band breakouts), I should be careful that the components are not contradictory in terms of other trade types that I look for. I should be careful that I am not forcing a trade out of components that, when I look at each component against the S&P500 Index, show a different story.

In this case, the iShares Brazil (EWZ) is not the best component for a short side according to my RSI divergence criteria.

EWZ versus S&P500 Index

Ewz_rel_spx_weekly_100912

 

  • The 14 week RSI has a bullish divergence on the latest low

Daily chart

Ewz_rel_spx_daily_100912

 

  • The June low was formed on a divergence below 30
  • The 04 September low was formed with the 14 day RSI above 30
  • This matches my RSI divergence criteria

On further reflection, I think it is best to take all profit on this trade now. Other ETFs as the short side against GS do not show a Bollinger Band breakout set up. There is a lack of commonality and that is not a bad lesson to take from a trade that has still made a profit!

I have got some more trade ideas with better commonality to come.

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