Don't Miss the 'Buy' Signal on This Brazilian Bank Stock

Itau Unibanco stock tends to rally after meeting up with its 160- and 200-day moving averages

Managing Editor
Nov 16, 2017 at 11:47 AM
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Brazilian stocks put in a strong run in the third quarter on an upbeat outlook for Latin America's biggest economy -- as evidenced by the nearly three-year high the iShares MSCI Brazil Capped ETF (EWZ) hit on the Oct. 5. This price action was echoed in Brazilian bank Itau Unibanco Holding SA (NYSE:ITUB), too, though more recently, the shares have pulled back to a trendline that historically offers bullish implications. Below, we will take a look at this potential buy signal, and examine how Itau Unibanco stock could fare in the coming weeks.

Itau Unibanco has etched out a channel of higher highs and lows since early 2016. In 2017 alone, the shares have tacked on 23% to trade at $12.65, and touched a three-year high of $14.58 on Oct. 5. Since hitting this notable milestone, though, Itau Unibanco has been mired in a month-long pullback.

The stock is now trading within one standard deviation of both its 160- and 200-day moving averages, after trading above the trendlines more than 60% of the time during the last two months. According to Schaeffer's Senior Quantitative Analyst Rocky White, following the last two pullbacks to the 160-day moving average in the past three years, the banking concern was up an average 10.42% one month later, and was higher 100% of the time.

Pullbacks ITUB

During the last two signals near the 200-day moving average, ITUB was up an average 17.78% one month later, and was higher 100% of the time. A jump of similar proportions would send ITUB to the $14.90 region -- territory not seen since September 2014. What still remains is the overhead $15 level, which capped the stock's advance back in 2014, and represents three times ITUB's 2016 lows. 

Short sellers have been in covering mode throughout the year. While short interest increased by 1.6% during the last reporting period, the 13.90 million shares sold short represents a 46% decrease from mid-December. Should short sellers continue to jump ship, it could provide tailwinds to push ITUB stock even higher.


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