Mexico got dragged into our presidential scrum and the peso became a barometer of voter sentiment toward Donald Trump. The Mexican stock market, of course, got buffeted with body blows as traders moved in and out in rapid fire.
Now that the dust is settling from a bruising election, what do the charts and indicators look like for the MSCI Mexican Capped ETF (EWW) ?
In this daily chart of EWW, below, we can see that prices have been in a broad sideways trading range for much of the past twelve months. Looking at the movement of the On-Balance-Volume (OBV) line from April through August, we see a relatively flat line. There is buying and selling going on, but neither side is being too aggressive for long.
At the beginning of September the direction of the OBV line changes to a sharp downtrend. Sellers of the EWW became more aggressive and the volume of trading became higher on days when EWW closed lower.
Were investors selling down to a sleeping position, ahead of the voting? I don't know, but volume increased and the Moving Average Convergence Divergence (MACD) oscillator went below the zero line for an outright-sell signal. Prices are off the lows of the day so far, but EWW is still down over 8% and there is a large gap on the downside. These shorter swings are hard to anticipate, so let's check the longer-term charts.
In this weekly chart of the EWW, below, we can see a major decline from the 2014 high. EWW has not made a lower low in 2016, changing the trend to sideways from down. The 40-week moving average line has recently turned positive. The weekly OBV line shows a decline from August 2014, interrupted by an uptick this September. It seems that investors in the EWW have been aggressive sellers for an extended period of time.
Bottom line/strategy: Trying to ignore the current political environment, the EWW has been in broad sideways pattern and that is probably going to continue for some time to come. What would change my view? A weekly close above $55 could be a signal that the bottom phase is over. Two weekly closes below $43 may have a strong bearish connotation depending on volume.
If the volume dries up as prices sink to new lows, it can be a subtle sign that the worst is over. Stay tuned, plenty more excitement to come.