Watching Brazil, Eyeing USD Positioning And Gold Miners

Rio de Janiero-Brazil (Dec 3)  Unless you’ve been living in a cave, it shouldn’t be a surprise to any of us that the Brazilian stock market has been beaten down hard, while its economy is in the worst recession since the 1930s. Investors are watching developments unfold as national companies and politicians are mixed in a corruption scandal, while recent economic data (including the GDP headline) shows the situation is deteriorating even more. There isn’t an analyst, trader or economist that has anything even remotely positive to say about this country right now (and rightfully so).

However, despite the recent abundance of negative news, we have noticed that the stock market refuses to make new lows (for now). MSCI Brazil, seen in the chart above, has found support on a very long term trend line while the 3 year compound return has been as negative as it was during its major low in 2002. We also noticed a bullish reversal during yesterdays trade, so as die hard contrarians, we will be watching this market very closely for a potential trade idea.

Hedge funds are heavily long USD into the ECB meeting and US jobs report

As the week draws to a close, we have the ECB meeting and Non Farm Payrolls report, both of which will cement the short and medium term direction of the US dollar and the European euro. The chart above shows that hedge funds and other speculators are universally bullish on the dollar (bearish on the euro) and therefore positioned accordingly. No surprise, as we are now close to approaching $50 billion in net long positions. To us, this is too bullish and could signal that there might be a chance of a shake out. Personally, we would prefer buying a pullback (if it comes).

Finally, one interesting price development we have recently noticed is that despite Gold (via SPDR Gold Shares (N:GLD)), Silver (via iShares Silver (N:SLV)) and Platinum making new lows even as I write this post, Gold and Silver mining companies (via Market Vectors Gold Miners (N:GDX) and Market Vectors Junior Gold Miners (N:GDXJ)) have so far refused to follow lower. SentimenTrader noted yesterday that:

“...the only other times this has happened, using the HUI Gold BUGS Index since its inception in 1996, occurred in the summer of 1999, early 2001 and November 2008. All showed gains over the next three months, averaging +20%.”

Once again we are keeping a close eye on this sector for a potential trade (just like Brazil).