Breaking News: Kremlin Behind Market’s Rise!
Don’t look now but there’s a special investigation going on right under your nose.
Right under your computer screen.
Right under your bank balance.
And not only that. It’s bound to make you richer than you imagine – richer even than the Smirnoff’s over on Ellis Avenue. Richer than the plumber with the white F-150. Rich, I say. Bloody rich.
But know it well: you’ll have to compromise yourself.
That’s right. But not in a Harvey Weinstein kind of way. No, no.
Rather… well, think Vladimir Putin.
It’s like this: the Russians, you see, have been behind the move. They’ve been colluding with the Fed and the U.S. Treasury Department, goosing the indexes via blind trusts that purchase the larger ETFs and FANG stocks – all in an effort to ultimately take complete control of the U.S. financial system.
They tried and failed to usurp the political system. So now they’re going for the money.
Anyway, the Russians it was, and the Russians it is and always will be. And very shortly there’ll be a special prosecutor assigned to the task of uncovering it all.
And you heard it here first.
From Rumor to News
So we got to thinking, maybe there’s something to it? Maybe the Russians are diabolically capable of anything. I mean, we saw all the Bond movies. Who knows? After all, where there’s smoke…?
But if the Russians are that smart, they’re not going to let the Americans have all the fun. I mean, sure, they’ll make money as U.S. shares rise. But what about their own market?
And that’s where it gets interesting. Because as we’ll soon show you, the profits the Ruskies are pinching from us, it appears are now headed back to Moscow in an absolute frenzy of equity bullitude.
Before we get to the charts and various other state witnesses, let’s take a quick run through the Russia news – just the financial side, though. No Trump. No Mueller. No Hillary.
We’ll start with this –
When you buy Russian equities as a whole, you’re essentially buying commodities – oil, in the main, though a few other miners, metals and manufacturing concerns are also thrown in. Some banks, as well.
And it’s for that reason that the chart of the Russian big caps closely resembles that of crude oil. And we all know that crude is trending bullishly now.
That aside, however, Russia also offers much healthier valuations for its shares than America, and matched head-to-head with U.S. oil concerns, the Russian equivalents are going for much cheaper. Cyclically Adjusted Price Earnings (CAPE) ratios, for example, place the U.S. at the most expensive, and Russia at the least expensive end of a group of 26 industrialized nations surveyed.
And it makes sense.
After Russia annexed the Crimea in 2014, they were slapped with a broad swath of sanctions from both the U.S. and U.N. that forced domestic businesses to turn inward, tighten their belts and look for efficiencies. The result today is a leaner, more competitive corporate base that has yet to be valued fairly by global investors.
Though it’s starting…
As the chart shows, the last two months have seen an increase in purchases, despite the fact that a new round of sanctions passed through Congress this summer, and, interestingly, caused barely a ripple.
More than that, another rate cut by the Bank of Russia is expected shortly. With inflation under control and wages rising moderately, there’s little reason to keep rates at the current exaggerated 9% level.
Pictures, Matty! All the Flesh and Gore! Give it over!
Let’s look now at the daily chart of the VanEck Vectors Russia ETF (NYSE:RSX), a reasonable proxy for Muscovy’s Large Caps.
Despite the latest decline in both RSI and MACD indicators (after an overbought 80 read on Labor Day – in green), the price action for RSX is constructive, and we believe any dip at this point will be short-lived.
All her moving averages are unfurled and trending modestly higher. There may be a gap to fill at $21, but strong support exists in the $21.00 to $21.25 range, so we don’t foresee a meaningful decline below that level. Current price is $22.15.
A turn to the weekly chart proves that the upside may, in fact, be formidable.
Particularly promising is the reverse head and shoulders pattern (in blue, below) that was traced over the course of nearly 30 months and whose neckline stands presently to be broken.
Have a look –
Nothing has happened yet, to be sure, but all signs are leaning toward an imminent break above the neckline and a push to an upside count of $31 before it’s all over. The most recent breakout in the crude oil market, detailed wonderfully by fellow Norman Hugh L. O’Haynew in this week’s edition of Wall Street Elite, makes it clear that oil is in play, and Russian shares should shortly follow suit.
Cap it off with the Monthly
Take a look now at the monthly data, charted for the last decade. What’s most important here is the surge in volume over the last three years – directly in line with the head and shoulders reversal outlined above – that indicates a massive accumulation of Russian shares is now nearly complete.
Here it is –
Beyond that, we see another noteworthy development, and one that occurs only rarely.
Monthly MACD readings have just this month pushed above their midway waterline, the first such occurrence since New Year’s, 2012 (green box, expanded). That’s a six year wait for a bullish confirmation of RSI’s surfacing that occurred late last year. Again, this is a multi-year signal that is now flashing green for Russia, and begging us to collude with the buggers with both hands and feet!
But before we do, we have one trade to report.
On the 14th of September, in a letter called Things We Like, and Things We don’t, we urged you to make a speculative purchase of the QQQ October 27th 150 CALL for $0.78.
It closed last Friday at 151.24, offering us a net profit of $0.46 on $0.78 spent. That’s 59% in six weeks.
And now we go for more.
For all you slavophiles, the trade is a synthetic long on RSX that runs thus –- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
Many happy returns,