They Don’t Ring Bells When Things Start Breaking Good

“They don’t ring bells at the top.” -old Wall Street axiom 

Dating back to August 2011 here, September 2011 in this blog post, and then April 2012 in this post, we looked at the country of Mexico and some of its prominent ADR’s (FMX and KOF, most notably) trading in America as viable long-term opportunities. The interesting part of Mexico’s strong and established uptrend is that it is almost an affront to the news stories that have been released south of the border over the past several years, complete with drug cartels owning entire Mexican cities, innocent civilians, prominent public officials and law enforcement officers being executed on a consistent basis, and an overall drumbeat of murders and mayhem. So, there was an embedded wall of fear and an extreme sense of disbelief or even condescension in terms of and against making a long-term bullish investment in Mexico.

Last March, however, I noticed that more and more American traders were starting to catch on to the fact that the Mexican market was “breaking good.” That shift in sentiment aligned with steep technicals, albeit still in an overall strong uptrend.

In my post, “Mature Mexican Rally,” on March 27th, I noted that:

…(on) the Mexican benchmark’s monthly chart…we have a mature rally on our hands, with a potential warning sign after a fake-out, or throw over, above the rising wedge pattern going back several years.

I’d start to look at fading any late-to-the-party Mexico bulls here.

Updating that monthly chart for the Mexican benchmark, first below, you can see the rising wedge throwover proved true, with the head-fake higher and reversal back down below the bottom of the wedge. Bulls will argue this is a simple flag within an overall uptrend before we head on higher. But ADR’s like KOF are particularly vulnerable here to breaking down further.

And if you are looking for a (liquid) way to play further weakness, consider shorting the EWW, country ETF for Mexico. The second chart below shows the daily timeframe, vulnerable to further downside if $71.70 is lost.

__________________________________

__________________________________

If you enjoy the content at iBankCoin, please follow us on Twitter