Brazil - RIO

Click chart to enlarge

The chart above is not of RIO but of Brazil (EWZ). Petrobras (PBR) and Vale (RIO) are the two largest companies in Latin America, and both are Brazilian. Let's face it, a bet on RIO is simply a bet on the Brazilian index (EWZ).

The good news with RIO is that it is at the bottom of its channel and at its 200dma, suggesting that much of the damage has already been done. The bad news is that EWZ has further to fall. Our projection is that RIO could see 30 and then go sideways for 3-4 months as a worst case scenario. If that happened, we'd buy a stock like RIO at 30 for the long run.

Our overall concensus about Brazil is that decoupling is a joke and that it will not do well without America. And you already know what we think about the current state of the American economy... with oil prices rising this quickly, we're in for a long, deep recession. Ben's answer: raise the rates. Another round of foreclosures is on the way. For a great number of Americans, the lower interest rates are what kept them in their homes. Now if only they could find a job before Ben hikes them back up again. And a second job to pay for this winter's heating bill. And a third job to cover Obama's tax hike. We're in way over our heads right now. Americans are just going to have to get used to a lower standard of living for awhile.

A note about the chart above: It is a logarithmic chart, and the moving average shown is the 200dma. For log charts, Ameritrade does not offer a linear regression tool, so the lines are drawn freehand. Even if they are off a little, though, it is clear that there is room for EWZ to decline further. The 200dma alone suggests this.