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ETF: When Spanish Stocks Rally, They Rally Hard

Question: How do you know ahead of time when a garden-variety correction is about to turn into a bear market rout?

Answer: You don't.

I would love to tell you that there is a tried and true way to make that distinction ahead of time, but there isn't. At best, you can look at past scenarios that were similar and handicap the odds to the best of your ability.


With that said, look at the recent performance of the iShares MSCI Spain ETF (NYSE: EWP). The Spain ETF is down nearly 10% from its January highs and is in negative territory for the year. Given the bad press coming out of Spain these days (a corruption scandal is threatening to tank to government that implemented the reforms that appeased the bond market last year), it is understandable if you fear that Spanish stocks are in the early stages of another bear market tumble.

But if this is the case, then the six-month rally in EWP would be one of the shortest on record. When the Spanish market rallies, it rallies hard.

More importantly, Spanish stocks are cheap at barely 11 times earnings, and sentiment towards them remains horrid. With European Central Bank President Mario Draghi suggesting this week that the euro is priced too high (implying that further monetary easing may be in the cards), my bet is that Spanish stocks are simply taking a short break before taking the next leg up.

Action to take: Buy EWP at market. Use a 10% stop loss.

Disclosures: Sizemore Capital is long EWP.

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Read our daily Markets section for more trading ideas.


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About the Author


Charles Lewis Sizemore, CFA, founder and editor of Macro Trend Investor (formerly The Sizemore Investment Letter), is dedicated to finding superior investments backed by powerful macro trends—before you hear about them on the nightly news or read about them in the newspaper or on the Internet. He has been a frequent guest on Bloomberg TV and Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal,and The Washington Post and is a frequent contributor to Forbes Moneybuilder, GuruFocus, MarketWatch and InvestorPlace.com.

Charles is the co-author of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008); and worked alongside best-selling financial author and economic strategist Harry S. Dent, Jr. in creating original research on the effects of changing global demographics on asset returns and economic growth. He also serves as the Chief Investment Officer of Sizemore Capital Management LLC,  a registered investment advisor.

His academic and real-life experience has given him a unique approach to investing: combining his insights into global macro trends with in-depth investor research. And he has developed a reputation for taking complex issues, recognizing long-term investment strategies, and then finding the hidden investing opportunities that he shares with investors.

Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.

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