Market Overview

Traders Buy The Dip In A Volatile Brazil ETF

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Traders Buy The Dip In A Volatile Brazil ETF

Brazilian stocks are usually more volatile than broader emerging markets benchmarks, and political volatility often plays a role in the gyrations of equities in Latin America's largest economy.

What Happened

The MSCI Brazil 25/50 Index has been volatile in recent days following the arrest of former Brazilian President Michel Temer. Temer was arrested last week on allegations he took bribes related to a nuclear power plant.

Temer was released earlier this week after judge Ivan Athié ruled the reasons for arresting the former president do not exist because Temer no longer holds public office.

Still, the MSCI Brazil 25/50 Index entered Thursday with a weekly loss of nearly 11 percent.

Why It's Important

In the face of increased political volatility in Brazil, the Direxion Daily MSCI Brazil Bull 3X Shares (NYSE: BRZU) has been, well, exceedingly volatile in recent days. BRZU attempts to deliver triple the daily returns of the MSCI Brazil 25/50 Index.

Coming into Thursday, BRZU sported a weekly decline of 30.66 percent, indicating that, for better or worse, the leveraged Brazilian ETF was doing a pretty good of its stated objective of triple the daily returns of the MSCI Brazil 25/50 Index.

Eager to bet on a Brazilian bounce, traders snatched up shares of BRZU on Wednesday, March 27th. On that day, traders added $52.11 million to BRZU, nearly triple the assets that flowed into the second-best asset gatherer among Direxion's leveraged ETFs.

Wednesday buyers of BRZU were soon rewarded for their faith in the triple-leveraged Brazil ETF as BRZU was up 11 percent late Thursday on volume that was more than double the daily average.

What's Next

Entering Thursday, BRZU was the second-worst performer on a month-to-date basis among Direxion's leveraged bullish ETFs.

Thursday's rally in BRZU could set the ETF up for some profit taking if traders remember that leveraged ETFs are best used for a day or two. That is something they should remember with BRZU because the MSCI Brazil 25/50 Index has a three-year standard deviation of 35.21 percent, more than double the comparable metric on the MSCI Emerging Markets Index.

BRZU has also been the most volatile of Direxion's leverage bull funds over the past 30 days, according to issuer data.

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