North Versus South America Mean Reversion?
I am not a big believer in mean reversion, but when things get stretched a bit too extreme and the technicals line up that two instruments look to be reversing, perhaps there could be an opportunity. Below is the ratio chart contrasting what many used to call Amazon and the Southern Hemisphere AMZN in MercadoLibre. With Amazon’s recent performance and MELI slumping the comparisons have not been talked about as much. Amazon is now higher by almost 30% over the last 3 months, but it has been recording some suspicious candlesticks after that spirited run. MELI on the other hand over the same time frame is lower by 13%. With AMZN showing some fatiguing candles MELI registered a bullish engulfing candle right at its upward-sloping 200-day SMA. For those looking to perhaps pair up this trade with an AMZN short and MELI long a CLOSE below 1060 for the latter would have to take the trade off. A CLOSE above 130.50 on AMZN would need to liquidate the short side.