#$rub

Russia’s MICEX Stock Index closed at an all-time high for the first time in 9 years.

One of the dynamics that has allowed the global equity rally to remain robust in recent months has been the emergence of new leadership. Among the new market leaders emerging has been...emerging markets. Heavily beaten down for years, EM countries have had a bit of a resurgence over the past few months. Now, whether this is merely a mean reversion bounce or the start of a more durable advance remains to be seen. However, one particular emerging market has been durable enough already that it is now at an all-time high for the first time in 9 years.

In April, we mentioned that one of Russia’s (aka, “the bear”) main stock market indexes, the MICEX, traded at an all-time high, besting its 2007 and 2008 peaks on an intraday basis. However, it was never quite able to score an all-time high on a closing basis -- until yesterday.

Of course, the weakness in the Russian Ruble has had plenty to do with the MICEX holding up so well over the past several years, even as other EM’s were getting decimated. In the process, the MICEX has been supported by its post-2001 Up trendline, bouncing off of it in 2008, 2014 and early this year.

Arguably, the combination of that trendline (at least since 2008) and the horizontal line marking the peaks in 2007-2008 and this past April, make up one massive ascending triangle. These patterns are generally resolved to the upside, with the “target” being a margin above the horizontal high equal to the height from the bottom to the top of the triangle. In this case, the bottom was the 2008 low around 500 while the top is here in the vicinity of 1970, so we are talking about a substantial potential rally from here.

So will the MICEX follow through this time and commence that type of a rally. We don’t know for sure, but it has a couple things going for it. First, the fact that the index has consolidated in the 4 months since April is not a bad thing. We often say that when prices reach their former highs for the first time in a while (in this case, 9 years), a breather or consolidation is healthy. When prices attempt to rally to new high ground immediately, it often results in exhaustion, and a false breakout. However, if prices can digest their move to new highs for a bit before breaking out, they will likely have enough energy to sustain a durable rally into new high ground.

Another potential tailwind for Russia, as we mentioned, is the strength of emerging markets at the moment. If that trend continues, look for the rally to lift all EM ships. We will say, though, that a key level of possible resistance in EM is approaching. We will keep an eye on this level and try to report on it should prices arrive there. Even if they do, however, it doesn’t need to be a death knell for Russian stocks which often march to their own drumbeat.

Long story short: as long as the MICEX sustains a breakout above the former highs, the sky’s the limit for longs; but should the index suffer a false breakout instead, shorts may have the upper hand.

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