Brazil bounce

The EWZ fund is trying to stage a reversal after a bad morning. And the bad morning is coming on the heels of some bad weeks.

By Monday, enough stocks within the Ibovespa had suffered selling that nearly 30% of them were oversold. That's almost the most in nearly 20 years when the index was still trading above its 200-day average. The Backtest Engine shows that the 2 other signals preceded medium- to long-term gains.

The quick decline was also enough to push more than 40% of them outside of their lower volatility bands. Again, one of the most we've seen during an uptrend, though the last one triggered right before a very painful dip-buying experience. Out of the 10 signals, 9 of them led to gains over the next 3 months per the Engine.

Even if we forget about the uptrend, there has been enough internal selling that the Summation Index has dropped to nearly -1000. That has typically preceded rebounds, again with one very painful exception.

With funds like EWZ, there can be currency translation issues, so it's not exactly like buying the stocks directly, and that can impact the success rate of some of these signals. But the selling has been severe enough that it typically has indicated exhaustion during uptrends. When these signals fail, they typically fail big, which suggests using aggressive risk control measures like stop losses or using defined-risk vehicles like options.