Though struggling under economic sanctions due to military involvement in Crimea and Ukraine, it appears the worst may be behind the Russian economy. With improving growth (moving from -0.1 to 0.1% GDP) and stabilizing oil prices, Russia looks to be on the rebound. Adding to the growth story, sanctions are scheduled to end this Summer, allowing Russia to resume its Western relations with desperately needed oil extraction technology firms. Almost 68% of Russia's exports are related to oil and gas. Most importantly for investors, Russian equities are showing signs of life.
While most are watching U.S. equities rip higher, we're continuing to see strength from emerging markets. Previously, we highlighted the breakout taking place in Brazil. Up 13% since we released that research, Brazil hasn't disappointed. Though nothing is guaranteed, and price knows more than we do, we are seeing a similar development out of Russia.
Using a weekly chart of the Market Vectors Russia ETF (RSX), you'll see exactly what we're talking about. RSX is an ETF that seeks to replicate as closely as possible, the price and yield performance of the Market Vectors Russia Index, which includes companies that are located in Russia or generate 50% of their revenues in Russia.
Russia has broken out of a steepening downtrend that dates back to 2011. With a 67% drawdown since then, Russian equities have been subject to significant discounting. We're not interested in buying stocks that are in a downtrend. But when the supply and demand dynamic changes, and buyers step into the marketplace, we sit up and take notice. In late 2014, and recently again earlier this year, buyers stepped in near the 12.00 level. More importantly, there was enough buying demand to push RSX through the downtrend line (in green), signaling a potential change in trend.
We can take advantage of this opportunity by making sure we identify the risk involved with this trade. We should never enter a trade without understanding potential risk versus potential reward. Technical analysis allows us to do just that. Here's a daily chart of RSX:
The breakout is clear. There is more demand than supply, causing prices to breakout. We like that. We also see a logical level (16.00) where buyers should step in if there is any pull back in prices. And if they don't, we're out of the trade. It's as simple as that. We're long RSX above 16.00. Below 16.00, we're out. Bila ne bila.
Disclosure: I am/we are long RSX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.