Brazil Ups Rates, EDZ Looks Good

Yesterday Brazil upped their rates by 50 basis points and signalled there's more to come in the weeks ahead as inflation surges. Inflation for 2010 came in just shy of 6%, the fastest increase in over 6 years as hot money flows into emerging markets and the BRIC countries (Brazil, Russia, India and China) who are the “big 4” which are at newly advanced stages of economic development.

Brazil now has the highest rates of any major economy with it's benchmark at 11.25%, it's expected it will reach 13.25% this year as the central bank tries to curb inflation and government spending. Hot money has caused the real (Brazil's currency) to appreciate 40% against the dollar in the last two years.

This is one of the themes of 2011 as emerging markets have been all the rage; I believe emerging markets will aggressively try to defend their currencies and economies from inflation. This is why I favor a short trade perspective on these countries over the coming year.

EDZ, which is an Emerging Markets Bear 3x Leveraged ETF is one of my favorite generic plays, although specific country equities are also something I consider to be worth looking into.

Here's EDZ

 A Bullish Descending Wedge goes lateral and forms a base. Wedges use to act differently, they use to reverse fairly sharply, lately though they have spent time after the breakout/down, building bases or tops which may influence their measured move targets to a more favorable extent.

 The 1-day 3C chart with a beautiful positive divergence throughout the base.

 60 min chart showing the same accumulation, especially at the test of support where the red trendline is.

While a position could be built near support, I prefer to wait for price confirmation and a breakout above $21.75 before committing too much capital to this trade.

This is one to keep on your watchlists and set alerts for.