A Not So Happy Cinco De Mayo For the Mexico ETF

Latin America as a group has been an area of the world where we have preferred to stay away from for sometime. More recently we've seen some nice mean reversion trades after all of our downside targets had been hit towards the end of last year. Mexico, however has not really participated that much, while some of its Latin American counter-parts have gone on to rally nicely with base metals and energy coming back in vogue so far this year.

I think the big point of this post is that Mexico right now looks like dead money at best. First, here is the iShares Mexico ETF vs the United States S&P500 ETF. Not only has this ratio broken down below the uptrend line from the 2006 lows, but towards the end of last year also broke the uptrend line going back to the 1998 lows. Not good at all:

Moving on, this next chart compares Mexico to the rest of the Emerging Markets. Notice how with emerging markets as a group doing well the past 4-5 months, Mexico actually broke the uptrend line from the early 2009 lows really showing its relative weakness. Not good:

And finally here is Mexico on its own. After getting destroyed in the 4th quarter last year, prices have now bounced back up to the broken trend line from the summer 2013 lows. This former support has now turned into overhead supply and also coincides with the 38.2% Fibonacci retracement of the entire sell-off from September to December:

We have a downward sloping 200 day moving average just above head as well, so any rallies going forward should be taken within the context of a bad bear market, both on absolute terms and relative to the U.S. and Emerging Markets.

I do not see any reason to be long this market. I think opportunity cost is probably a huge risk here as there are clearly much better places to be. I think the only thing that can make me bullish Mexico is time. We want to see this 200 day moving average start to slope up and Mexico put in some work relative to other markets.

I would continue to stay away on the long side and look elsewhere instead.....

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Tags: $EWW $EEM $ILF $SPY