Mexican Stand Off

Mexico is up over 20% for 2013, surpassing nearly every other equity market. iShares MSCI EAFE ($EFA) is only up 6% and Vanguard’s All World Ex-U.S.  ($VEU) has just gained 3% YTD.

Recently the Mexico Fund ETF($MXF) put in a small double top. I say small, because the drop to create the double top only involves two bars. The shorter the time frame of a pattern, typically less the impact it has on price action. The test of the short-term high was done on the back of decreasing momentum, however buying has still be strong in the Mexican ETF. When we look at the On Balance Volume indicator we can see that volume on up days has been strong, with the trajectory of the line rising.

While $MXF trades in a small channel, we can see where possible support would come in if we were to break to the downside. We have the rising trend line as well as the 50-day moving average. We can watch momentum and see where it finds support as well, the bulls will be looking for 40 to hold.

Mexico has clearly been an outperformer in 2013. This type of consolidation is healthy and while the momentum divergence is a little worrisome, it’s nothing that can’t be fixed by time and/or price. We’ll see going forward if the aforementioned support levels come in to play and whether they hold.

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