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When I think about the ramifications of a US consumer spending recession, I always think about Mexican GDP correlations. Revisiting my "Shorting Mexico" note from 6/18/08, the only thing that has changed in between then and now is that my outlook for unlevered future US growth has deteriorated.

Despite the short squeeze rally in global stock markets in July, the EWW (Mexican ETF) stands out as having underperformed. I have been using a stop loss of $54.78 for EWW, and that price was never realized in either of the two snap July rallies. This is an outright bearish negative divergence.

My near term target on the downside for the EWW is $51.65. Take a look at the long term chart attached, and tell me if you want to be long this call option if I am right on the economic cycle.

*Full Disclosure: I am short EWW in my fund.
KM


  • EWW
chart courtesy of stockcharts.com