The MICEX Index Continues Lower…
Somewhat contrary to our guesses late last week, the futures markets are suggesting that another ‘risk-off’ day could be coming (of course, this could easily be reversed later today!). As we say, the timing of very short-term daily fluctuations scarcely plays to our aptitudes!
However, the Russian MICEX index continues to display weakness. Inline with the views expressed in our June 2011 newsletter, the index broke through the May low (on Friday), and seems to be continuing lower…
As can be seen from the chart above, the low of 1569.91 (made on May 23rd) was broken on Friday (with a new low of 1553.54). As of this morning, the MICEX index continues lower, trading at 1553.95 at the time of writing. The price pattern seems to be eerily inline with the Elliott Wave model; we seem to have experienced five waves down from the April high, a three wave correction back up into early July followed by a swift reversal for another impluse wave down. By this interpretation, we’re currently in some kind of wave 3, and should expect a sharp rally (that doesn’t exceed 1685), followed by another leg down.
Our June 2011 newsletter clearly expressed our misgivings with financial trends in the Russian Federation (particularly as they pertain to Russian stocks):
Something that we’ve noticed for several months, is that Russia has been subject to negative monetary momentum. … the real money supply of the Russian Federation has been losing upward momentum for some months…
A small short position on the ‘Market Vectors Russia ETF’ (RSX), may be a decent way to play this. However, given that we’ve experienced 2 months of negative price action in global equities, I would wait for a rebound before entering a position (or adding to one), and – to safeguard against the possibility of being wrong – I would put a stop at the early-April high (at around $43-$44).
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EDIT: MICEX index trading at 1543.13 RUB!
EDIT No. 2: And of course the RSX etf is down 6%:
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