Why Would I Ever Want To Buy Mexico?
Last week I was having a few drinks and catching up with my friend John Melloy who was recently named the new CEO of Stocktwits. I'm really excited to hear about some of the things they're working on. If you don't know John, he's been reporting on these markets for almost 15 years - working at both Bloomberg and CNBC. So he's one of the guys I can talk shop with and we're on the same page.
Anyway, he mentioned to me that Mexico was one of the things that Goldman Sachs' Abby Joseph Cohen liked at this year's Barron's roundtable. She said that Mexico will benefit from the improvements in the U.S. and thinks you should gain exposure there through the iShares MSCI Mexico ETF $EWW. Respectfully, I could not disagree more. Not only do I think you should stay away from Mexico, I find little reason not to be short Mexico outright and would much rather do the exact opposite of this advice.
With that said, I understand we all have different time frames and maybe she's looking year's down the road. And maybe she'll be right, years down the road. But right now, based on everything I see out there, the only positives that I see here are a potential short-term oversold bounce that I would sell aggressively right into.
The first chart is a longer-term weekly bar chart showing the entire 2007-2009 decline and bounce back. What worries me here is the overshoot of that key 2007 & 2011 resistance that couldn't hold. That could be a big problem.
The next chart shows daily candlesticks and the clear break of a very well-defined consolidation. Some might call this a symmetrical triangle because of the converging trendlines representing support and resistance since last summer. This break signals to us the lower prices are coming.
And finally, when we're looking to allocate assets into a particular country's stock market, we want to see strength in that market, or at the very least a sign that strength might be shifting into that market. In this chart below, you can see the exact opposite - Mexico literally crashing relative to US Stocks. This is a chart of $EWW vs $SPY down 30% since the beginning of last year. 
Is that something you want to get involved in? Not me. No thank you. I'd keep selling any strength in this market. I'm not really one to care too much about GDP growth or any of that stuff. I can't figure out what that has to do with the stock market. I've ran the numbers - there's nothing there. So we'll ignore that and focus on the only thing in the world that will ever pay any of us. Price.
Conclusion: keep fading Latin America
Source:
Abby Joseph Cohen (Barrons Roundtable)
Tags: $EWW $SPY