The most money is made in Emerging Markets when things go from "terrible" to just "bad."

450px-Shoppers_on_a_Pedestrian_Mall_in_Sao_Paulo_-_BrazilBrazil (EWZ, quote) is a case in point as illustrated by the EWZ ETF that mirrors the benchmark Ibovespa index. Brazil is up +18% in 3 weeks as a fund flows and political sentiment had moved to extreme levels.

Meanwhile, nothing has changed in the fundamental outlook for the Brazilian economy or its core state owned companies that dominate the index.

Petrobras (PBR, quote) may still lose a chance at a fuel price increase in June and is facing prospect of a S&P downgrade.  Vale (VALE, quote) is still facing slumping iron ore prices on oversupply and a drastic cutback in demand by China. What has changed:  Fund flows - locals were very short the futures market heading into March, and they are covering en masse.

Foreigners have been UW Brazil for months and have been waiting for economic catalysts that are not expected until at least 3Q '14 but now feel some urgency to catch a political reform process that may still be 9 months out in the future. They are scrambling to get exposure to index benchmarks and places where there is expectation Dilma or the opposition must back off pressure on state companies.

Brazil may in fact be nearing the end of the current tightening cycle and deserves credit for being ahead of the curve on getting real rates higher.

The easy money is over on this current run. Technicals and fund flows gave us a pretty high conviction call to bounce the Ibovespa at 45K.

Fade is at 50K.

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