Russia Hit Extremely Hard

Oct 23, 2008: 11:52 AM CST

We tend to follow our own country’s stock market extremely closely and only give cursory attention to other foreign markets.  Let’s take a moment to look at the Russian Trading System Index and view its stunning fall from 2,500 to 700 in five short months.

RSTI Monthly Chart:

The monthly chart would be particularly devastating to investors were this a single company, but in fact it’s the broader index for the Russian Stock market in general – meaning many individual Russian stocks have suffered worse than this chart shows, devastating investor equity virtually across the board in such a short period of time.

The Russian Index held its own during the 2000-2003 bear market in the US, and then expanded rapidly as commodity prices were in a strong bull market into mid-2008 when the Russian Index collapsed along with the expected global slowdown/recession and demand destruction in commodity prices.

The index is currently down 45% for the month of October alone (compared with the US S&P 500 Index which is down 23% for October).  The Russian Index is down over 70% from its peak roughly in June/July.

Neither the 20 period or 50 period EMAs, nor any of the major Fibonacci levels saved off the decline – not even for a moment.  This is an extremely rare example of five solid red bars in a row – on a monthly basis at that.

Let’s bring it down to the weekly chart to see how quickly things got so bad.

RSTI Weekly Chart:

For quite some time, the 20 and 50 week EMAs provided solid support until early 2008, which was a significant sign of an uptrend (notice the comfortable spacing of the moving averages until they crossed over recently).

The initial breaking of those averages was the early warning sign that things might not be right, or that at least the uptrend was coming into a consolidation or reversal phase ahead.  What got traders was the sharp upswing in May that took the index from 2100 to 2500 in roughly two weeks – what looked like a sign of strength at the time was actually a significant ‘trap’ or ‘blow-off’ top of some sorts.

Directly after that swift move, price fell slightly… and then accelerated as it broke the 20 and 50 period EMAs again, which set up a test of the 200 week moving average… which provided absolutely no support as expected.  Failing at the ‘last line in the sand,’ price had no where to go but down… and down it went, exceeding the bearish expectations of most that were analyzing it I would expect.

Finally, let’s translate the index into an ETF for those who wanted to participate in this move… I’m making no recommendations whatsoever on what to do next.

RSX – the Market Vector ETF for Russia:

Volume picked up throughout 2008, surging into the last few months as price plunged from $60 per share down to $15.

Be careful in this environment – it’s unlike what most people have ever seen.

4 Comments

4 Responses to “Russia Hit Extremely Hard”

  1. Craig Says:

    One possible view of the Russian market is that it is currently in a 2nd wave of perhaps supercycle degree. If it survives this bear market without going below the 1998 low, it could be one of the best investments of the next 2 decades along with China.

  2. Corey Rosenbloom Says:

    Craig,

    It’s certainly possible but that is one hell of a Wave 2 though.

    I see a simple 5-wave progression up (comprising sub-wave 1) from 1998 to 2008. Also, sub-wave 1 of sub-wave 1 also had a 5-wave basic impulse) so with closer inspection, you may be absolutely right, though it will take greater than 20 years to play out the possible impulse.

    Good call!

  3. Analyst Says:

    RTS is a good index, but >90% of Russian trading volume takes place in the MICEX so maybe you should analyse that one too.

  4. Corey Rosenbloom Says:

    Analysts,

    Yes, but I’m unable to find that symbol in StockCharts.com. Perhaps I’ve overlooked it but I’ve searched their index and haven’t found it. Please let me know if I’ve just overlooked or missed it.