Why The iShares MSCI Mexico Capped ETF (EWW) Is Due For A Rally

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June 27, 2017 3:55pm NYSE:EWW

NYSE:EWW | News, Ratings, and Charts

The bearish sentiment surrounding the iShares MSCI Mexico Capped ETF (NYSE:EWWhas gotten too overheated, according to a reliable options indicator, and the fund might due for a big rally in the short term.

So say the options experts at McMillan Analysis Corp., who today published a note that their computer generated Put-Call Ratio Buy Signal has been visually confirmed by EWW’s chart (see below):


As you can see above, the put-call ratio has spiked since the beginning of June, and is now at the highest levels since back in July 2016. In essence, this means that bearish options bets on a volume basis are dwarfing those on the bullish side. When the scale tips too far one way like this, we tend to see a sharp turn in the other direction, and in EWW’s case, could mean a sharp rally is coming in the short term.

Want to know more about put-call ratio? Here’s McMillan’s explanation:

Put-call ratios are useful, sentiment-based, indicators. The put-call ratio is simply the volume of all puts that traded on a given day divided by the volume of calls that traded on that day. The ratio can be calculated for an individual stock, index, or futures underlying contract, or can be aggregated – for example, we often refer to the equity-only put-call ratio, which is the sum of all equity put options divided by all equity call options on any given day. Once the ratios are calculated, a moving average is generally used to smooth them out. We prefer the 21-day moving average for that purpose, although it is certainly acceptable to use moving averages of other lengths.

Put-call ratio is by no means a fool-proof indicator, but it is a historically reliable tool for traders to use to identify stocks and ETFs that are due for short-term spikes. It pays to closely monitor EWW’s share price over the next several sessions as a result.

The iShares MSCI Mexico Capped ETF (NYSE:EWW) was trading at $53.63 per share on Tuesday afternoon, down $0.61 (-1.12%). Year-to-date, EWW has gained 21.97%, versus a 8.19% rise in the benchmark S&P 500 index during the same period.

EWW currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 23 ETFs in the Latin America ETFs category.

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