EWZ Brazil ETF: A Textbook "Scene of the Crime" Setup Unfolds

After months of sideways action and false hopes, the iShares MSCI Brazil ETF (EWZ) finally delivered what we've been patiently waiting for - a clean breakout above a massive descending resistance line that had been acting like a ceiling for over a year. But here's where things get really interesting: we're now witnessing what I like to call the "scene of the crime" scenario, and it's setting up one of those high-probability trade setups that experienced traders live for.

Let me walk you through exactly what's happening on this chart and why this pullback could be the opportunity we've been positioning for.

The Long Road to Breakout

Looking at the bigger picture, EWZ has been through quite the journey. From those lofty highs around $36 back in late 2023, the Brazil ETF got absolutely hammered, plummeting all the way down to the low $22-$23 range. That's a brutal 35% decline that left many investors questioning whether emerging markets, particularly Brazil, had any life left in them.

But here's what caught my attention during that entire decline - price kept bumping its head against a very well-defined descending trendline. This orange line on our chart isn't just some random drawing; it's been the defining technical feature for EWZ over the past year and a half. Every time the ETF tried to mount a meaningful rally, sellers showed up right at this trendline, pushing price back down like clockwork.

This kind of repeated rejection creates what we call "institutional memory" in the market. Traders and algorithms start to recognize these levels, and they become self-fulfilling prophecies. Until they don't.

The April Breakout That Changed Everything

In April 2025, something fundamental shifted. Instead of the usual rejection at our descending trendline, EWZ finally muscled its way through with conviction. This wasn't some weak, half-hearted attempt that immediately failed - this was a legitimate breakout that carried the ETF from around $25 to nearly $28 in relatively short order.

Now, here's where my 26 years of chart reading experience comes into play. When you see a breakout like this after such a prolonged period of resistance, it's rarely the end of the story. In fact, it's usually just the beginning of a much larger move. But - and this is crucial - the market almost always wants to test that breakout level.

Think of it like this: imagine you're trying to climb over a tall fence that's been keeping you trapped in a yard for months. Once you finally make it over, you don't just keep running. You look back at that fence to make sure it's really behind you. That's exactly what EWZ is doing right now.

The "Scene of the Crime" Psychology

This concept of returning to the breakout level is something I've observed thousands of times across all markets, and I call it the "scene of the crime" because price always seems to return to the scene where the technical violation occurred. It's almost like the market has a guilty conscience and needs to revisit what it just did.

From a psychological standpoint, this makes perfect sense. There are traders who missed the initial breakout and are now hoping for a second chance to get in at better prices. There are also shorts who got squeezed on the breakout and are looking for an opportunity to re-establish their positions. All of this creates natural buying interest right around that former resistance level.

What we're seeing now with EWZ trading around $27.21 is the beginning of this retest process. The red arrow on our chart shows exactly where I expect this pullback to find support - right back at that orange trendline that was resistance for so long and should now act as support.

The $25.25 Sweet Spot

This is where the rubber meets the road for anyone considering a position in EWZ. The $25.25 level represents what I believe is the optimal entry point for this setup. It's positioned right at the intersection of our former resistance trendline and represents about a 10% pullback from the recent highs - exactly the kind of healthy retracement that sets up sustainable moves higher.

What makes this level so compelling isn't just the technical confluence, though that's certainly important. It's also the risk-reward profile it offers. If we're wrong about this support holding, we'll know relatively quickly. A decisive break below $24.50 would suggest that the breakout was false and that we need to reassess our bullish thesis entirely.

But if we're right - and the technical evidence strongly suggests we are - then we're looking at a potential measured move that could take EWZ back toward the $32-$35 range over the coming months. That's a potential 25-30% gain from our entry level, with relatively limited downside risk if we manage the position correctly.

Volume and Momentum Considerations

One thing that gives me additional confidence in this setup is the way EWZ has been acting since the April breakout. Despite pulling back from the highs, the ETF hasn't shown any signs of panic selling or capitulation. The pullback has been orderly and measured, which is exactly what you want to see in a healthy retest scenario.

Moreover, the fact that we've held above the $26 level for several sessions suggests that institutional buyers are starting to step in ahead of our target zone. This kind of early accumulation often precedes the more dramatic buying that occurs right at key support levels.

What Could Go Wrong?

Of course, no setup is guaranteed, and it's important to acknowledge what could derail this bullish scenario. The most obvious risk is a broader market selloff that takes all risk assets down regardless of their individual technical pictures. Brazil, being an emerging market, tends to be particularly sensitive to global risk sentiment.

Additionally, any negative developments specific to Brazil's economy or political situation could override the technical setup entirely. Currency volatility, commodity price fluctuations, or changes in U.S. monetary policy could all impact EWZ's performance independent of our chart patterns.

From a purely technical perspective, a clean break below $24.50 would negate this entire setup and suggest that the April breakout was indeed false. In that scenario, we'd likely see a retest of the $22-$23 lows, and possibly even lower levels.

The Path Forward

As we sit here watching this textbook retest unfold, the key is patience and precision. The market is giving us exactly what we hoped for - a chance to enter at a logical support level with clearly defined risk parameters. The $25.25 target represents the optimal entry point, but I'd be comfortable with any entry between $25.00 and $25.50.

The beauty of this setup is its clarity. We know where we want to buy, we know where we'll be wrong, and we have a reasonable expectation for where price could go if the technical analysis plays out as expected. These are the ingredients that separate high-probability trades from gambling.

For those considering this opportunity, remember that the best trades often feel uncomfortable in the moment. Right now, with EWZ pulling back and Brazil facing various economic headwinds, it might not feel like the obvious time to be buying. But that's exactly when the best opportunities present themselves - when the technical setup is compelling but the fundamental backdrop keeps the crowd on the sidelines.

The "scene of the crime" is about to be revisited. The question is whether you'll be there when it happens.