Junk-Status Downgrade Brings Brazil Stocks in Focus

iShares MSCI Brazil Index (ETF) (NYSEARCA:EWZ), Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), and Vale SA (ADR) (NYSE:VALE) are in focus after Brazil's credit rating was downgraded

Sep 10, 2015 at 11:58 AM
facebook twitter linkedin

Late Wednesday, Standard & Poor's lowered Brazil's sovereign credit rating to junk status. The move has had a negative effect on the country's currency -- the real -- as well as U.S.-listed shares of Brazil stocks. Earlier, in fact, the iShares MSCI Brazil Index (ETF) (NYSEARCA:EWZ) hit $22.64 -- its lowest mark since June 2005 -- and was last seen down 2.4% at $22.93.

Also feeling the heat from this downgrade is oil-and-gas issue Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR). The shares have tumbled 3.9% to $4.89, and are within a chip-shot of taking out the 12-year low of $4.68 they tagged on Aug. 24. Longer term, the stock has shed 72% year-over-year.

It appears options traders have been rolling the dice on additional losses. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PBR's 50-day put/call volume ratio of 0.91 ranks in the 90th annual percentile. Simply stated, puts have been bought to open over calls at a near-annual-high clip.

Mining magnate Vale SA (ADR) (NYSE:VALE), meanwhile, dropped 1% out of the gate, but has since revered course. At last check, the stock was up 3% at $5.14 -- building on its recent copper-related gains. Nevertheless, the shares remain 37% lower on the year.

​Put players have been active in VALE's options pits, as well, per the equity's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.37 -- in the 77th annual percentile. Echoing this is the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.59. Simply stated, near-the-money puts more than double calls in the September series of options.

Beverage maker Ambev SA (ADR) (NYSE:ABEV) is down 1.9% today to linger near $4.93. This struggle just echoes the longer-term troubles, with shares of ABEV off 29% year-over-year, thanks to several rejections from their 200-day moving average. More recently, the equity has been led lower by its descending 20-day trendline.

In spite of this, sentiment is tilted toward the optimistic side. For starters, the equity's SOIR of 0.14 rests lower than 86% of all similar readings taken in the past year -- signaling a call-skewed backdrop in ABEV's short-term options pits. Elsewhere, the majority of analysts covering the shares maintain a "buy" or better rating, with not a single "sell" to be found. A capitulation by call players and/or upbeat analysts could translate into additional headwinds for ABEV.

Banco Santander Brasil SA (ADR) (NYSE:BSBR) fell 3.2% at the open to $3.61 -- matching the record low it set on Aug. 24. More recently, the security was off 0.3% at $3.72, widening its year-to-date deficit to 26%.

Skepticism has been ramping up on the long-term laggard. Short interest, for example, jumped 12.4% in the latest reporting period. However, these bearish bets still only account for 4.7% of BSBR's available float, leaving the door wide open for shorts to increase their exposure. Elsewhere, all three analysts covering the shares maintain a "hold" or worse recommendation.

Now is the time to join our thriving community of Event Traders who consistently profit from every earnings season. With this discounted subscription opportunity, you'll stay ahead of the curve and seize opportunities others miss. Do not let Q3 earnings season pass you by – subscribe now and supercharge your portfolio with expert insights that turn market reactions into profit-generating opportunities!! Don't waste another second... join us right now before the next trade targeting +200% is released!