The Bullish “Bear” Market - Part II
A popular Russian equity ETF is potentially breaking out of its 8-year hibernation.
Back in April, we posted a chart of the Russian MICEX stock index, which happened to be touching an all-time high at the time. Considering the turmoil that recently plagued the financial markets in Russia, a.k.a., “The Bear”, the new high in its stock market came as a surprise to many (including us). Of course, much of the MICEX’s success in recent years accrued as a result of weakness in Russia’s currency, the Ruble. As the MICEX is denominated in Rubles, the weak currency made the equity market appear that much stronger.
On the other end of the spectrum lies the RTS Index. This Russian equity index is actually denominated in U.S. Dollars. Because of the Dollar’s strength over the past few years, the RTS began the year roughly 70% below its all-time high set in 2008. It was a similar story for the most popular Russian equity ETF, the VanEck Vectors Russia fund (ticker, RSX). The RSX, which is a reasonable proxy for the RTS, was also down more than 70% from its 2008 all-time highs at the beginning of the year.
But just because the RSX isn’t at all-time highs like the MICEX, it doesn’t mean that bullish developments cannot occur. Sometimes, a stock or fund drops so much that the slightest good news or positive price action can spark an extensive rally. And today may have presented one such positive development.
Other than a 2009-2011 bounce, the RSX has spent the last 8 years in a steady downtrend since its all-time high in 2008. In fact, a very well-defined Down trendline has formed, connecting the interim tops within the larger downtrend. Today, the RSX looks to have finally broken that 8-year trendline.
Of course, a trendline break of this magnitude is a big deal -- if the RSX is able to sustain it. Breakouts to all-time highs (e.g., potentially in the MICEX) are particularly attractive due to the fact that there is literally no overhead supply or resistance for prices to encounter.
On the other hand, a security that has been beaten down for some 8 years to near all-time lows holds tremendous potential opportunity in its own right. Of course, prices have to undergo convincing improvement in order to make believers of such potential. Today’s rally has potentially accomplished that feat. As long as the RSX can hold above the broken post-2008 Down trendline, the upside potential is substantial.
Of course, we are talking about a potential rally into 8 years worth of potential resistance. Thus, we would not underestimate the difficulty of RSX’s path higher, if it does indeed follow through on its breakout. The point is, don’t throw the position on auto-pilot and forego its risk management. However, for the first time in a long, long time, this “Bear” market finally has something to be bullish about.
_________
More from Dana Lyons, JLFMI and My401kPro.
The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
