Ever since the Dow plunged 240 points on Tuesday, the iShares MSCI Brazil Index (EWZ) has been on a downward trajectory from 70 to 62. Yesterday was no different. When the Dow plunged 440 points intraday, the Bovespa fell more than 2,000 points.

And with the Bovespa down 2,000 points, the EWZ was sure to react… which it did with a $6 down move. And with further Dow decay near-term, we see even further downside for the Bovespa on increased risk aversion given credit deterioration, housing and lending fiascos.

Listen, I could sit here and mirror the misleading “at-or-near-bottom” housing statements that Paulson is famous for, but I’m a realist. Housing is getting worse, and isn’t likely to show any signs of improvement until, maybe, 2010. Alt-A and subprime lending is still a mess, and we must still contend with the fallout-over-credit deterioration. Realistically, we’re not likely going to see any signs of a Dow bottom until we reach 13,005, says Adam Lass.

And given that, the Brazilian Bovespa is likely to sell off even more on risk aversion, and send the iShares MSCI Brazil Index (EWZ) spiraling further. That’s the view that Crisis Trader folks currently hold… and we’re sticking to it.

It’s too bad, too. The Sao Paulo Stock Exchange, for which the ETF measures performance of, was up 45% for the year on the heels of explosive Brazilian growth. But with the Dow turning over, there’s further downside for the Sao Paulo and the EWZ ETF.

When all is said and done, and the “blood in the streets” subsides, you’ll want to long the EWZ ETF for gains, as well as any Brazilian stock that took a beating along the way, including:

Ian

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