Brazil's 'bottom is in', so buy the weakness: Traders

It's been a tough year for emerging markets.

The exchange-traded fund for emerging markets, the EEM, has swooned nearly 14 percent in 2015 as a strong U.S. dollar and a slowing global economy have put pressure on many stocks worldwide.

But as the trading year winds down, one market watcher sees a sweet spot in Latin America's largest economy: Brazil. The former emerging market standout has seen a turbulent year of credit downgrades and a faltering economy, but that might be poised to change.

"I think the tide has finally turned for Brazilian stocks," Andrew Keene told CNBC's "Trading Nation" on Wednesday. The EWZ Brazil ETF has been in a downward spiral the last year, plunging 46 percent as the country has faced a shrinking economy, weak currency and political unrest.

The turmoil has dragged the Brazilian real down by more than 40 percent against the dollar in 2015. But despite these headwinds, Keene, founder of AlphaShark Trading, believes "the bottom is in" for this fragile market.

Read MoreBrazil's economy takes the good with the bad

In the middle of Brazil's problems, a number of market players have gotten caught flatfooted by the meltdown.

Yet Keene's bullish stance stems from a combination of constructive chart patterns as well as large inflows of institutional options call buying in the EWZ. Looking at a short-term chart of the ETF, Keene noted that the EWZ has recently begun trading above its short-term 20- and 50-day moving averages. "That's a very bullish sign," he said. The ETF is now up nearly 20 percent from its late September low.

Keene isn't the only one paying close attention to the EWZ technicals. "Fast Money" trader Tim Seymour, who has been bullish on the emerging market for some time, noticed a very bullish "golden cross" that occurred on the chart. A golden cross is when a long-term moving average crosses above the short-term moving average.

In late October, the EWZ's 50-day moving average began trading above its 20-day moving average. "I think the golden cross we saw two weeks ago is worth buying," Seymour said Wednesday. "I would buy Brazil on any weakness."

Read MoreChina's Black Friday sees it revisit August lows

Adding to Keene's thesis was a flurry of call buying in the EWZ last week. "We saw big institutional buyers of the January 27-strike calls for around 50 cents," said Keene. "I think the EWZ can pop above its recent top of $26 and get to $27." That represents a move of as much as 16 percent from the current trading price of just above $23.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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