Russian Bear Turns Bull (UNG, RSX)?

There are a lot of folks out there who trade stocks with an eye to geopolitical developments. They’re the people who know that India and Pakistan have just upped the ante in their cross border battle over Jammu and Kashmir, with varying reports of up to 20 people dead and/or injured over the weekend.

They’re the ones who’ll tell you that Israel is now considering a full-scale ground invasion of Gaza to halt the rocket fire on its southern cities, and that Russia is on the verge of a genuine recapture of the Ukrainian breadbasket it lost with the disintegration of the U.S.S.R.

These are the same folks who know that America is on the verge of bombing ISIS or IS or ISEL – or however the hell you wanna call ‘em – in Syria (!), a move that lends support to the embattled presidency of Bashar al-Assad, a man accused of gassing his own people during the several years long civil war that has claimed over 195,000 lives, according to U.N. estimates.

But we’ve got a single piece of news that’s going to be a shocker to nearly all of you who follow the geopolitical angle in stock trading.

tea

We know that you’re broke.

What the…?

 

That’s right.

We know that you never made a buck trading the wars and conflicts and rebellions and insurgencies, because we know that they’re by and large irrelevant to movements in the markets altogether.

They’re what?! How dare you!? Fool!

 

Sorry to say it, brother, but unless there’s a full-scale regional conflict or a world war, the disruption to prices in the stock market or any other commodity or asset class are either negligible or temporary or both. And very often the resulting price action has absolutely nothing to do with the direction the actual bullets are flying on the ground.

Take a recent example.

A few days ago, Michael McCaul, Chairman of Congress’s Homeland Security Committee, took to the airwaves to announce that ISIS is the greatest threat to American national security since the events of 9/11 made it known that radical Islam posed a clear and present danger to the U.S.

Yet whaddaya know, just as that group went on its latest offensive and captured huge swaths of oil rich Iraq and threatened its regime, causing America to respond with drones and bombers in an effort to keep the regional balance of power from going melons-up, look at what happened to the price of oil.

crudeoil

As you can see, the very opposite of what one would have expected. Oil prices began to drop almost immediately after ISIS took control of all of north central Iraq and began consolidating its power base.

What?

 

Why didn’t oil prices rise? Why didn’t the greatest threat to America in the last fifteen years, and to the Middle East in Lord knows how long, not send a message of instability and potential supply disruptions (along with higher prices) to the crude pits on the NYMEX?

If they did, it was fleeting.

And that’s because the noise of distant shooting can do almost nothing to curb the unremitting rise of a bull market in motion.

If there’s an exception to this rule, it can be found in the bond market. There, you’ll find a greater sensitivity to men with guns and the takeover or threatened takeover of entire nations or provinces than you will where other securities are traded.

But again, those adjustments are very rarely more than temporal, quickly returning to trend once the world sees that the crisis in question is manageable and/or can be contained without disrupting the regular course of business.

We would also add that Russia’s conflict with the Ukraine has for last six months resulted in nary a bullish movement in the price of either oil or natural gas, even though the Ukraine has threatened several times to disrupt the massive flows of both those commodities through its territory to Russia’s largest consumers in continental Europe.

Look here –

ung

Natural gas prices are off their highs for the year by a whopping 25% since Russia seized the Crimea, plummeting even as the conflict heated up and the death toll mounted.

There have been some 2,000 dead and many missing, most in the last two months.

Go figure.

Lesson Learned. Turn off CNN. The News Matters Not.

We want to assure all our readers that in making these comments we are not making light of war or the disastrous results to both body and soul that result from it. We merely wish to point out that there is nothing to be gained for the average investor by being current on geopolitics and certainly nothing to be profited by trading them. As the examples above demonstrate, the resulting moves in the market are very often counter-intuitive and would have resulted in great losses for those playing war card.

That said, we do want to have a look at the Russian market now – not because they’re about to profit from increased oil revenues (though that, too, may be the case), but rather, because technically the Russian stock market has been suffering through a dreadful bear market that has now reached the 40 month mark, and we believe a turn higher may be at hand.

Take a look here –

rsx
This is the weekly chart for the Market Vectors Russia ETF (NYSE:RSX), an issue with good liquidity, trading at least $500 million worth of stock on a daily basis.

The chart shows a market in decline for almost three and a half years, though a surge in volume with the latest lows, coupled with a steep drop in the weekly RSI could mean we’re about to bounce (see blue boxes).

We also like the fact that both RSI and MACD are about to surface above their midway waterlines (red circles), a development that should give confidence to the bulls that some kind movement is afoot.

The daily chart (not seen here) is also constructive, with RSI already above its waterline and MACD looking ready to confirm within a day or two.

All told, we believe it’s time to dip into the Russian waters and offer that bear bull a gentle hug.

And we’re doing it with a covered CALL position bolstered by the sale of an additional PUT.

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The Profit Hunter recommends you consider selling one RSX November 27 CALL for $0.55 and one November 21 PUT for $0.25 for every 100 shares of RSX purchased.

With RSX currently trading for $25.40, your total profit on the trade, should your shares be called away, comes out to $2.40, or 9.44% in 90 days. And that doesn’t include a 2.92% annual dividend!

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The Profit Hunter recommends you consider selling one RSX November 27 CALL for $0.55 and one November 21 PUT for $0.25 for every 100 shares of RSX purchased.

With RSX currently trading for $25.40, your total profit on the trade, should your shares be called away, comes out to $2.40, or 9.44% in 90 days. And that doesn’t include a 2.92% annual dividend!

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With love of the hunt,

Hugh L. O’Haynew, Senior Analyst, The Profit Hunter

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