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Technical Tuesday - Here’s One Great Post-Election Play

By Chris Rowe November 8, 2022 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

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It’s midterm Election Day in the US, so today I’ll give one great play for after the election.

Before I do, here’s a cool factoid I stumbled upon recently:

(Click any image to enlarge)

I mention this because I’ve been following the election coverage, and not just in the US.

I’m especially interested in what’s happening in Brazil.

Those eight billion people? They all have to eat. And as you’ll see in a moment, there’s a good chance they’ll be eating things grown or raised in Brazil. Which is very good news for the agriculture industry and for the International Latin America sector. 

And that’s very good news for us as investors. Which brings me to one post-election play.

Right now the International Latin America sector ranks #7 out of the 45 sectors we track at True Market Insiders.

You can see that on the Sector Relative Strength Matrix, one of the premium tools we offer with Sector Prophets Pro, our sector research and data platform.

You always want to select your bullish plays from at least the top half of the Matrix. Ideally from the top third. Latin America fits the bill.

Notice how the sector has held at the top of the ranks all year, while the U.S. stock market got hammered. Not only has it been stronger than the S&P 500, but it’s been stronger than just about every sector of the U.S. stock market for most of 2022. 

The only time it underperformed was when the U.S. stock market had a short-lived relief rally over the summer… 

And now it’s back, baby!

Here’s a look at the sector’s bullish percent index (BPI) chart. This indicator shows what percentage of stocks within the sector are currently on point-and-figure Buy signals on their own price charts.

When the chart is in a column of X’s, it means that bulls (a.k.a buyers, or Demand) control the sector over the short term. When the BPI is on a Buy signal – when an X-column gets higher than the X-column that came before it, like this chart is now – it means Demand is in control over the longer term as well.

Clearly Latin America is in a rising column of X’s and on a Buy signal. Momentum favors the sector’s moving higher, which favors the stocks within the sector moving higher. 

What’s more, the sector is outperforming the wider stock market (the Equally Weighted S&P 500) as you can see from this Relative Strength (RS) chart.

Like the BPI, this indicator is also in a column of X’s AND on a Buy signal.

Let’s drill down…

According to Investing.com… 

“Brazil is currently the third-largest food producer in the world. It recently displaced the U.S. as the world's leading beef exporter and remains the greatest exporter of coffee and soybeans.

“With tight global grain supplies due to the war in Ukraine, record drought in Europe and unusual rains in India and China, the South American country has emerged as one of the world's leading short-term solutions to the growing food-security problem.”

The story (by the excellent Thomas Monteiro) goes on to say…

“Unlike the U.S., Europe and China—which have already reached peak farmland—Brazil has been growing its arable area exponentially during [Brazil’s previous] government. This, in turn, led to environmental concerns, especially regarding the deforestation of the Amazon region.

“As the president and CEO of Chicago-based AgResource, Dan Basse, said in an interview: ‘We estimate that the world needs to bring another 25 million acres of cropland in the next five years to balance things out. Most of that land will have to come from South America.’"

So how can we play this? Here are three ETFs that stand to benefit from strength in agriculture and in Latin America.

Agriculture/Latin America ETF #1 -- iShares MSCI Brazil ETF (EWZ)

This one is designed to shadow the performance of the large- and mid-cap segments of the Brazilian stock market.

I’ve added Fibo levels to the one-year daily chart. And again, on this chart we can see that the blue 50-day MA has just crossed the red 200-day MA, making the bullish "golden cross."

A move to the 100% Fibo level at $39.60 will give us a return of +20%, while a move to the 161.8% level (at $48.53, not shown) gives us a +48% return.

Agriculture/Latin America ETF #2 - iShares Latin America 40 ETF (ILF)

This ETF tracks the investment results of the S&P Latin America 40TM index, which is composed of stocks trading on the exchanges of five Latin American countries.

The ETF is trading above both its 50-day and 200-day moving averages (MAs). What’s more, the blue 50-day MA is just about to cross the 200-day MA (a “golden cross”). 

Again, I’ve added Fibonacci levels to this one-year price chart of ILF. A move to the 100% retracement level, $31.19, highlighted in yellow, represents a gain of +17.7% from the current price of $26.50.

A move to the Fibonacci level above that one, the 161.8% level at $37.66 (not shown), represents a gain of +42%.

Agriculture/Latin America ETF #3 - VanEck Agribusiness ETF (MOO)

This ETF is actually in the #4-ranked Chemicals sector. 

As you know if you’ve been reading me for a while, I sometimes recommend stocks and ETFs from Chemicals based in part on the tight correlation between agriculture and chemicals, which are used in so many fertilizers and pesticides.

Here’s a one year chart of MOO with Fibo levels reliably in place.

The fund is trading above its 50-day MA but below its 200-day. Also, the 50-day isn’t as close to crossing the 200-day as was the case on the other charts.

Nevertheless, with the tailwinds of agricultural strength, I think we could see MOO reach the 100% Fibo level at $109.16. That’ll give us a gain of 21.70% from the current price near $89.69.

If MOO can hit the (not shown) 161.8% level at $126.87, we’ll see a return of +41.45%.

There you go. Three actionable ideas from two top-ten sectors.

Remember to watch “Tuesday Morning Quarterbacks” every week as Costas Bocelli, Bill Spencer and I banter about the market and provide actionable insights and trading ideas.

Click here to go to my YouTube channel, or click the image below to play the latest TMQ right here.

 

Thanks for reading.

Trade Safely,

Chris Rowe

Founder and CEO, True Market Insiders

 

 

 

 

“You see it in the price before you see it in the news.”

 

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