Latin America Report

From the Desk of Steve Strazza @Sstrazza and Alfonso Depablos @AlfCharts

Breadth is expanding to a growing list of sectors and industry groups as the current bull market continues to broaden in scope and participation.

Naturally, this phenomenon is not limited to the US. We’re also seeing more and more countries and regions around the world join in on the party.

As the dominance from mega-cap growth fades, and cyclical and value stocks assume leadership roles, the stage is finally set for international outperformance.

In fact, despite how good US stocks were in 2023, they were not the best.

Today, we’re going to talk about Latin America. They were last year’s global leader, and we think the region is poised for more outperformance in the future.

First, with all the buzz about US stocks this past year, you’d think they were the leader. They weren’t.

Here is a 2023 performance chart of international indexes by region:

The iShares Latin America 40 ETF was up 33%, putting it ahead of the US and Europe on the global leaderboard. 

We think this relative strength will continue into 2024. Let’s hit the charts and discuss why.

Here’s the iShares Latin America 40 ETF $ILF versus the All-Country World Index $ACWI:

While you can see over a decade of steady underperformance on the left-hand side of the chart, you can also see a change in the character of the trend in recent years.

Latin America has been building a constructive base versus the broader global equity market since 2020.

Judging by the looks of Latin American stocks on absolute terms, as well as the bullish momentum we’re seeing from the region, we think this ratio completes a trend reversal and starts moving higher. 

This would suggest more outperformance from ILF in the future.

Here’s the absolute trend:

As you can see, price is threatening a multi-year downward trendline in what appears to be a long-term accumulation pattern.

A breakout would indicate a structural trend reversal is just getting underway for Latin America.

Here’s a zoomed-in look:

Ever since the covid crash, ILF has been in the base-building process.

It is currently stuck below overhead supply at a shelf of old highs and the 61.8% retracement of the 2020 decline.

We think buyers take control of this key resistance zone and force a breakout soon. We’re already seeing it from the strongest individual countries and stocks in the region.

So when ILF follows, we can be long on strength above 30 with a target of 39.50 over the next 6-12 months.

However, we think other vehicles offer better opportunities. Let’s continue our top-down exercise and drill into the strongest countries now.

Here's the iShares Mexico ETF $EWW:

EWW just reclaimed a shelf of former highs from 2011 and 2007 as it breaks out from a monster base.

If you can’t tell this is a leader by the absolute trend, here it is working on another massive base breakout relative to ILF:

This ratio was at all-time highs earlier in 2023, and we think it is heading back there.

We're long EWW above 65 with a target of 91 over the next 6-12 months.

Now, for the strongest of them all. This is the MSCI Argentina ETF $ARGT shown in a long-term uptrend versus its Latin America peers: 

And here it is on absolute terms, also pressing against all-time highs:

After resolving a multi-year base earlier in 2023, ARGT closed out the year by hitting our first objective at the 161.8% extension.

While this is a logical place to digest the recent gains, we believe ARGT will eventually continue its path higher.

If ARGT is above 54, we like it long towards 78 over the next 6-12 months.

Next, we have the iShares Brazil ETF $EWZ:

Similar to ILF, Brazil is on the verge of resolving higher from a rounding bottom formation.

If we’re above 34.50, the bias is higher toward 40.

Even the riskiest stocks in Latin America show signs of a trend reversal.

Here’s the iShares Brazil Small-Cap ETF $EWZS:

Price is pressing against the breakout level of a 2-year base, but patience is required for this one.

If it’s above 15.20, we’re long on strength with a target at the 2020 high just north of 22.

How about the iShares Peru ETF $EPU?

EPU is threatening to break out from a multi-year downtrend. 

A trendline break is always some of the earliest evidence of a pending reversal. That’s exactly where we think Peru is headed.

We like it long above 33 with a target of 39.

Even the MSCI Colombia ETF $GXG has been surging:

While Colombia is a long-term laggard within the region, we can’t ignore this textbook bearish-to-bullish reversal pattern. 

As long as last week’s breakout above the 2023 highs holds, this base is complete and the path of least resistance has shifted higher for GXG.

If we’re above 22.75, we’re long with a target of 28.50.

The weight of the evidence suggests that all these countries are at least on the verge of an impending trend reversal. 

In the case of the biggest leaders, strong uptrends are already in place for countries such as Argentina and Mexico. 

Now let’s look at some of the strongest individual stocks with favorable chart setups.

Here’s our Latin America ADR scan, sorted by the names closest to new highs: