the “wall of opportunity” how to get mexico to pay your...

True Market Insider I 1

Donald Trump has started building “the wall.” The one he says Mexico will pay for.

Whether he’ll get to finish the wall remains to be seen.

But truth is… it doesn’t really matter. Not to investors.

In fact, investors can cash in on Trump’s south-of-the-border gambit any time the financial markets are open for trading.

Here’s what I mean...

The Mexican stock market got slammed the moment the Donald was elected president. But most investors were too focused on the U.S. market to even think about international markets.

The “Wall of Opportunity”

How to Get Mexico toPay Your Mortgage


In just three days, their stock market declined 17%.

Trump certainly flexed on Mexico throughout his entire presidential campaign. Was he just saying what he needed to say in order to get his voter-base riled up? Or has he really hung a “bullseye” on Mexico?

Here’s why the answer doesn’t matter.

Financial markets tend to be a self fulfilling prophecy.

Investors could actually push the Mexican market lower simply because they believe that other investors think a Trump victory should push prices lower. The result is that the “Mexico-is-headed-lower “ prophecy comes true.

The behavior of investors makes it come true.

If this seems irrational to you… perhaps it is. And that’s OK.

Because price behavior doesn’t have to “make sense,” fundamentally. In fact, it rarely does. Price behavior is only a matter of one or another evolving collective perceptions.

Sometimes price movements happen because nobody wants to be the last one out when they believe that others believe it’s time to exit.

So everybody heads for the exits (sells), and prices fall.

Irrational or not...

Emotional price jolts to tend to make for great short-term trading opportunities.

Savvy traders can exploit those illogical moves when a bearish climate, such as the one that’s taken shape around Mex-ico, has become too crowded.

Contrary investors routinely make a bundle by waiting for the exact moment everybody agrees that something or other “should” happen... then investing in the opposite direction.

Here’s an example.

In January 2014, the whole world swore that interest rates were going higher (meaning that bond prices were heading lower).


Hardly anybody was saying interest rates were more likely to decline. However, here’s a screenshot of a video we record-ed, in January 2014, saying just that:

Even though, just one month prior, the Fed had announced it would begin tapering its stimulus (bond buying). This caused every market pundit in sight to predict higher interest rates. But the technical picture said the opposite.

The screenshot of the video we published shows a 10-year chart (2004-2014) of interest rates on the 10-year Treasury bond (TNX).

You can clearly see the long-term downtrend line, where interest rates had typically reversed lower. Again, these are the same rates everyone said would go higher.

Although we made a strong technical case for the opposite, using price charts, the idea originally hit our radar be-cause... everyone seemed to share the same sentiment.


Here’s what happened next...

Interest rates reversed and moved lower... and lower. The entire time, market pundits continued to pound the tables, calling the bottom in rates. But lower and lower they fell.

No matter how much they chanted “Down with bond prices!”, the pundits just couldn’t push the tide back. And a few contrarian (logical) Treasury bond traders exploited that majority sentiment.


Now, when interest rates decline, bonds advance in price. The chart, above, shows what happened to Treasury bond prices.

BACK TO THE MEXICAN STOCK MARKET

One practical way of analyzing a stock market bottom would be to go around town asking 20 people, from doctors and attorneys to teachers and policemen, whether the market is going to go higher or lower. If everyone says the same thing then you’ve probably got yourself a major price reversal on the horizon.

Too basic to believe in?

Well...

While this is certainly not the entirety of our analysis, nevertheless you’d be hard pressed right now to find anyone who thinks the Mexican stock market has a rosy future. While this may or may not be THE bear market low for Mexico, it seems like a very good entry point for one very powerful income generating strategy that we’ll soon discuss.

Short-term investors can snatch quick income from this situation while long-term investors can dive in and weather the high volatility that’s typical of the “bottoming” process.

THE CLASSIC SIGNS OF A STOCK MARKET BOTTOM?

Capitulation would be one. This is when the magnitude of price declines seem to be so intense that it’s just a vertical line


instead of the typical staircase patterns that stock markets trade in. We’ve recently seen a 17% decline in just three days.

Major news pushing the stock market to new lows. I’d say that Donald Trump being elected President qualifies.

Big volume declines would be another classic sign. In the 5-year chart of the Mexican stock market, above, you can see where we circled the major spike in volume (number of shares traded each day). The Mexican stock market traded five times its average volume.

You’ll see the huge spike in volume again in a 20-year chart of the Mexican stock market in a moment. But first, another historic comparative example is in order...

In the above chart, you can see the U.S. stock market experiencing the bear market from 2000 - 2003. As the bottom formed, we saw major spikes in volume in July and October 2002 (green circled).

But let’s not get too cocky here and assume we will call the absolute bottom. Take a look at the bottom made in the 9/11 attacks in 2001. That was a major low, within the bear market with 3x the average volume traded. It wasn’t THE bottom, but we saw a 20% gain in three short months from that low. It was an excellent time to make a trade in individual stocks, the general stock market, itself, and a great time to initiate the income strategy I’ll reveal in a minute.


Another quick example: Using the 5-year chart of the U.S. stock market, above, we can see the spikes in volume at the major lows of the 2008 market crash.

While it may not be clear just by viewing a chart of a major stock market average like the S&P 500, most individual stocks did bottom out at that first low, in November of 2008. A hand full of very large stocks dragged the index down to the absolute low, in March 2009, where you see another huge spike in volume.

BACK TO THE MEXICAN STOCK MARKET... AGAIN

What does this mean to you?

How can we turn this into income for our stock portfolio?

The ticker symbol for the exchange traded fund (ETF) that tracks the Mexican stock market is EWW.

Long-time investors might remember a few times when the Mexican index made the U.S. stock market (S&P 500) look like a big loser.

When the S&P 500 gained nearly 100% from 2003 to 2007, EWW gained over 500%.

When the U.S. market gained 120% from 2009-2013, EWW gained 240%.


Again, look at the volume spike in year-20 of this 20-year chart. Perhaps this is the first bottom, like the November 2008 bottom in the U.S. stock market, when most U.S. stocks bottomed out. And although it wasn’t the final bottom for the S&P 500, that didn’t make November 2008 a bad entry point.

We’ve already discussed how to profit from an oversold Mexican stock market average. Buying EWW anywhere below $50.00 is probably an excellent long-term play.

For the short term, I’ll show you a great way to collect about 2% in just one month.

But first, let’s check out one individual Mexican stock that we can trade on the U.S. exchanges.

There’s a great reason for this.

“Emerging markets” were the strongest stock market averages in 2016, and that trend looks stable as we enter 2017. In fact, they’re actually gaining strength. Mexico, however, has suffered fallout from the 2016 election wall hype.

But one stock that hasn’t gotten that memo is Cemex (Symbol: CX).

This company trades on the New York Stock Exchange through an “American Depository Receipt” (ADR). Don’t let the jargon scare you. You buy CX the same way you buy any other stock -- just punch in the symbols and hit “buy”.

Cemex is a major cement company with a $12 billion market cap (current valuation) and 42,000 employees. So don’t


let the single- digit stock price fool you.

It’s a “fallen angel” from the $42.00 range, back in 2007, down to a closing low of $2.60, when global markets were crushed in October 2011. (Remember when the S&P 500 lost 19.5% after congress’ disagreement on the debt ceiling caused the U.S. credit rating to be downgraded for the first time ever?)

At the 2008 and 2009 lows, it dipped below $5.00 and both times went on to reach double digits (above $10.00

and above $15.00, respectively.)

Cemex only spent a week trading below $3.00 and about a month below $4.00, back in 2011. It rebounded up to $14.37.

It then got crushed from that high, especially in 2015, but then bottomed out at the same time as the U.S. stock market after turn of the year, in January 2016, at $3.63.


But wait!

This chart looks like it took off as soon as Donald Trump started talking about building a massive wall!

In fact, if you look closely, the way this stock has traded over 2016, its ticker symbols might as well have been TRUMP. Whenever it appeared as though the Donald would be our next president, the stock rallied and vise versa.

Here’s why...

Assuming the wall gets built, which seems unthinkable to some, this company will likely be a major beneficiary. Set aside whether the wall is feasible or not. Life is full of “unthinkables” becoming “realities.” (How many people swore Donald Trump could never be president?)

Analysts know that engineers are being tasked with considering how such a wall could be built. As a possible mod-el, those engineers are looking at the barrier that separates Israel from the West Bank.That barrier is made largely of precast concrete panels. It’s possible any future US/Mexico barrier would be similarly constructed.

Since it’s not economically feasible to transport heavy building materials over large distances, companies near the border would probably be selected for the job. Cemex has operations on both sides of the border.

Walls aside, other analysts site improving U.S. residential construction activity as an additional catalyst that could push


Cemex’s valuation higher. Rising Mexican infrastructure investment would be another growth propeller.

This global company’s revenues come from local construction activity in each of its six regions: Mexico, United States, Northern Europe, Mediterranean, South America and Caribbean, and Asia. If the wall is built, then what would be more diplomatic of Trump to have Cemex, a Mexican company, take on the project?. “You want jobs? Here you go!”

We’re not suggesting that contracts for a single construction project will transform U.S.-Mexican tensions from insults and discord into peace, love and harmony.

Nothing so simplistic or naive...

But the “wall story” is worth mentioning since it played a large part in propelling CX from the $4.00 range to the $8.00 range. Trump’s election pushed it from $7.02 to $9.08 immediately and it then came back to the middle of the range. This is a typical 50% retracement that any healthy bullish stock should be expected to experience.

THE RIGHT STOCK IN THE RIGHT SECTOR

When you divide the U.S. stock market into 10 major sectors, “Industrial” stocks had been ranked #6 in terms of rela-tive strength (when compared to the other 9 sectors).


Leading up to the election through October, the sector’s relative strength moved up to #4/10 and as soon as Trump was elected, it jumped to #2!

In other words, price behavior is telling us that Industrials are the place to be.

U.S. cement consumption took a nosedive during and after the financial crisis in 2008. Due to disappointing residential construction spending, the recovery has been somewhat disappointing. Analysts now expect U.S. ce-ment demand to improve and institutional investors seem to be confirming that sentiment.

As far as Cemex goes, the company had a tough time and that’s why the stock was hammered from the 40s down to single digits.

Recently, Cemex has been selling off non-performing assets and making acquisitions to restructure the com-pany. It has consistently improving top and bottom line growth.


One way to play this is to own the stock. We believe that any position established in the single digits (below $10.00) would perform exceptionally well. The stock has historically made it up to the mid teens, with a challenging indus-trial spending environment with Obama in office. With the wind at its sails, we expect a much stronger rally over the long-term. This would only be appropriate for investors who can withstand high levels of volatility.

And for the investor who is willing to risk one point for every four points in upside, the January 2018 call options, with a strike price of $7.00, can be purchased below $3.00. If the stock makes it up to $20.00, the option should trade above $10.00. On Friday, January 13th, these call options were quoted at just $1.85.

Keep in mind that every call option you own represents 100 shares of stock and we typically don’t feel it’s appropri-ate to use more than 30% leverage. Thus, if an investor is used to buying 1,000 shares of this stock, the investor would feel comfortable owning 13 call options.

*** Note that certain options on this stock represent 104 shares or 108 shares but most of them represent 100 shares. January 2018 has two series of options and one of those series represents 100 shares and another rep-resents 104 shares. Consult with your broker/financial advisor regarding this matter, but it’s obviously a minimal difference.

BACK TO THE MEXICAN STOCK MARKET... ONE MORE TIME

The way to generate income on the Mexican stock market would be to sell the “at-the-money” put options that expire somewhere between 25 and 45 days. What does that mean?

Well, to find the “at the money” options, we start by looking at the price quote on EWW (the Mexican Stock Market). Once we note the price, we then turn to look at the options contracts available for EWW.

We look at the “put options” that have a “strike price” that is closest to the price of EWW.

For example: On Friday, January 13th 2017, you would have looked at the “at-the-money” put options that would have ultimately expired on February 10th.

At this time, there had been 27 days left before expiration.

The price of EWW was $42.65. The put options with the closest strike-price are considered “at-the-money”. They had a strike price of $42.50.

These put options were trading at $1.00.

For every 100 shares of the ETF (EWW) that an investor is willing to own, one put option can be sold. If an investor


is willing to own 500 shares of EWW, then the investor can sell five put options and collect $500.00. This may not seem like a lot but it represents approximately 2% of the value. 2% income in less than 1 month is a massive return.

If the put option had expired when EWW was below $42.50, then the investor who sold the “naked put” would have been obligated to buy EWW (no matter where EWW was actually trading - as long as it was below $42.50).

To review, if exercised (“assigned”), the investor would have bought EWW below the quoted closing price of $42.65 price after being paid $1.00 ($100.00 per option contract). Either way, the investor keeps that $1.00.

If, an investor began searching for at-the-money put options to sell on EWW, on February 9th., the investor would have seen EWW was at $46.13

So we would have checked the expiration dates (or, in this case, our system shows the number of days before ex-piration so we choose the one with 36 days left).

Then we look to the put options (not call options) with the close strike price of $46.00. We see they are quoted at $1.18-$1.20. And that 1.18 represents 2.56% income (not counting trading fees) because our risk is that we end up owning EWW at $46.00 (1.18 / $46.00 = 2.56%).

Most brokerage firms allow a 20% capital commitment when selling naked put options. When we consider that, we see the $1.18 represents 19.56% of the capital required to make this trade, assuming you aren’t “put the stock” (you buy it at the strike price).

If you are put the stock, which means you’ve bought it at the strike price ($46.00). So you’ve collected $1.18 on your $46.00 risk.


Does this get Mexico to pay for the wall?

No.

But it might get Mexico to pay a U.S. investor’s mortgage, car payment, cable bill or perhaps just a night out on the

town.... The town of Mexico, that is.

The situation with Mexico is highly fluid. As facts on the ground change… so do your opportunities for profit. Twice

each month, readers of our Sector Focus letter get timely, frequently-updated research and guidance like the above.

Go here now to find out how you can join them today.

DISCLAIMER

The information contained herein has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. True Market Mavens LLC is not an investment advisor and is not licensed to give specific financial advice. The chairman of True Market Mavens, Chris Rowe, is also the CEO, CIO and owner of Rowe Wealth Management LLC, which is not owned by and is not the owner of True Market Mavens.

Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed to be reliable (“information providers”). However, such information has not been verified by True Market Mavens or the information provider and TMM and the information providers make no representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein. TMM and the information provider accept no liability to the recipient whatsoever whether in contract, in tort, for negligence, or otherwise for any direct, indirect, consequential, or special loss of any kind arising out of the use of this document or its contents or of the recipient relying on any such recommendation or information (except insofar as any statutory liability cannot be excluded). Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice. Neither the information nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, com-modities or exchange traded products. This document does not purport to be complete description of the securities or commodities, markets or developments to which reference is made.

Unless otherwise stated, performance numbers are based on pure price returns, not inclusive of dividends, fees, or other expenses. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. You should consider this strategy’s investment objectives, risks, charges and expenses before investing. The examples and information presented do not take into consideration commissions, tax implications, or other transaction costs.

The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.

Some performance information presented is the result of back-tested performance. Back-tested performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes to illustrate the effects of the True Market Mavens LLC strategy during a specific period. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon.

Back-tested performance results have certain limitations. Such results do not represent the impact of material economic and market factors might have on an investor’s decision making process if the investors were actually managing money. Back-testing performance also differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. True Market Mavens believes the data used in the testing to be from credible, reliable sources, however; True Market Mavens makes no representation or warranties of any kind as to the accuracy of such data. All available data representing the full platform of investment options is used for testing purposes.

Copyright © 2017 True Market Insider, All rights reserved.

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