Latin America Vs. United States of America (01/08/24)

01/08/24

Today’s chart requires some explanation. It is a Point & Figure Chart of the iShares Latin American ETF (ILF) vs. the S&P500 ETF (SPY)

• An X box represents rising relative strength for ILF, and an O box represents relative strength for SPY.

• These charts can be adjusted to conform to desired time frames. In this chart, each box represents a 3% move and starts in 2007. 

• The value in P&F charts is that they eliminate a lot of noise from the day to day movements, and helps spot major changes in trend. Especially helpful in Relative Strength Evaluation. The time frame in years on this chart are shown on the X Axis. Some of the spaces between the years are different and could be confusing. But this in fact shows the value in these charts because if there is no change in the underlying, in this case ILF vs. SPY, the chart does not change. Every day does not require an X or an O, but will change only when the relationship changes. 

• Our screens literally run tens of thousands of Relative Strength comparisons each night. 

• Markets have been choppy to start 2024, and we are seeing some rotation back and forth. Today it’s out of commodities into technology. This week should give us some indication of how the year will start in terms of Relative Strength. 

• Taking a 30,000-foot view, shows us an interesting, if not unexpected potential major shift happening right now. This shift is outlined in our Outlook 2024 and fits with our medium-term view that power will shift to commodity producing nations, many in Latin America. 

• We have a starter position in ILF, along with a few starter positions in international banks with focus in Latin America and emerging markets. 

• I've referred to this quote before, because it sums up the current situation well. It is from investing legend Jeremy Grantham in a CNBC interview November, 2010.

• “Incidentally the emerging markets have since 2000 returned 3.3X the S&P so every 100 you had in the S&P, you would have had 330 starting from the same point in emerging. And after that incredible discrepancy, which by the way says the main event in investing should be getting the big picture right….It’s nice to pick stocks, but how many good stocks do you have to pick, in a whole portfolio to equal that incredible move between the biggest asset class in the world, US equities, and the third or fourth biggest asset class, emerging markets. It’s these movements between the great asset classes that make you money, and I'm happy to say that that's the group at GMO that I work with in asset allocation where we are students.”   

• Today’s chart shows the major Relative Strength shift referred to by Grantham which ended after the bear market low in 2009. After 2010, it was all US, all the time. 

• The base of Relative Strength for ILF has been building since 2020 and shows signs of breaking the 14-year downtrend. A shift I expect could be important for portfolio allocations this decade. 

• Our Chart of the Day is intended to be a standalone technical chart. 

• We use them to highlight open positions, stocks on our watch list, or indicators that we believe are important, or just interesting at the time. 

• It is not a directional market call. 

• Feel free to share them with others who may be interested.