“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,” according to Parets.
Fundamentally speaking, EWW’s laggard status is startling because Mexico is a major producer of oil and industrial metals, the very catalysts boosting rival ETFs, such as ECH, EWZ and the iShares MSCI All Peru Capped ETF (NYSEArca: EPU).
However, EWW offers scant leverage to those themes. The materials sector is 13.7% of EWW’s weight, making the ETF’s fourth-largest sector weight, but the fund has no direct energy sector exposure despite the fact that Mexico is one of the largest non-OPEC oil producers in the world.
EWW/SPY Ratio
Chart Courtesy: J.C. Parets, Eagle Bay Capital