Russia Rising

03/22/02 01:36:38 PM

by David Penn

After the debt crisis of 1998, Russia and other Eastern European countries spent three years in the wilderness. Will 2002 mark the year of Russia's return?

Security: TRF, RNE, CEE
Position: N/A

When Long-Term Capital Management imploded in the fall of 1998, following a series of bad bets on Russia's ability to service its growing debt load, the ensuing stampede of capital fleeing Russia and Central Europe (whose economic fortunes remain linked to Mother Russia's) was widely regarded to have been responsible for funding the dot-com boom that followed in 1999. And while happy capitalists gladly repatriated their wealth, the countries of the former "Soviet bloc" were more or less left to fend for themselves.

For the three years following 1998, it appeared as if Russia and Central Europe might remain in the doldrums. However, in 2002, there are signs that financial assets in Russia and Central Europe may be on the verge of a significant recovery. Looking at three closed-end funds that invest solely in Russia and Central/Eastern Europe, the Templeton Russia Fund (TRF), the Morgan Stanley Russia Fund (RNE), and the Central European Equity Fund (CEE), a clear move off of the bottom is in evidence in all three funds. Should these moves upward continue--perhaps reinforced by any overall global recovery in 2002--there may be great things in store for those considering an investment (once again) in Russia.

After years on the bottom, Russia and Eastern European funds move toward important tests of resistance.

Graphic provided by: MetaStock.

What would these funds need to do in order to establish a new bullish trend? One of the technical strategies that might come in handy is the bull market confirmation, a Dow theory-based approach that relies on previous price action--specifically previous rally tops--to determine when new trends have developed.

Look, for example, at the chart of the Templeton Russia Fund (TRF). TRF was at 60 in the spring of 1997 when it peaked and entered a bear market. This bear market lasted for about 18 months, when TRF bottomed at about 6--a loss of 92%. During this decline, there was a short, countertrend rally in the summer of 1998 that saw the TRF advance to 28 before the final collapse to single digits. The high point of this advance, 28, is the most important point of resistance for any new bull market move in the Templeton Russia Fund. In fact, this point of resistance is the bull market confirmation point. Although the TRF has not yet reached this level, it is nonetheless the level that will let traders know that the lows have been firmly established and the most significant point of resistance--again, based on previous price action--finally breached.

Similar bull market confirmation points can be found in the other funds included. Both the Morgan Stanley Russia Fund (RNE) and Central European Equity Fund (CEE) had price action through 1998 that was remarkably similar to that of the Templeton Russia Fund. The Morgan Stanley Russia Fund also features a bull market confirmation point, this one at 20, that looks to be tested soon by RNE's advance in 2002. It should be noted that this bull market confirmation point in RNE has been tested at least twice before--once in the spring of 2000 and again in the fall of 2000--yet neither of those advances was able to break through. The Central European Equity Fund--while more volatile in the years since 1998 than the Russian funds were--had a similar bull market confirmation test in the spring of 2000 as the CEE fund neared 18. Unfortunately, this volatility has left behind a number of resistance points (at 13.5 and 14.5) that the current CEE advance has had to work through before making another run on the bull market confirmation point at 18 (there is also resistance at 20.5). But should the Russia funds make their bull market confirmations in the spring of 2002 and continue to advance, can Central and Eastern Europe be far behind?

David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

Title:	Technical Writer
Company:	Technical Analysis, Inc.
Address:	4757 California Avenue SW
	Seattle, WA 98116
Phone # for sales:	206 938 0570
Fax:	206 938 1307
Website:	www.Traders.com
E-mail address:	DPenn@traders.com
Traders' Resource Links
Charting the Stock Market: The Wyckoff Method -- Books
Working-Money.com -- Online Trading Services
Traders.com Advantage -- Online Trading Services
Technical Analysis of Stocks & Commodities -- Publications and Newsletters
Working Money, at Working-Money.com -- Publications and Newsletters
Traders.com Advantage -- Publications and Newsletters
Professional Traders Starter Kit -- Software

Click here for more information about our publications!

Comments

Date:�03/25/02Rank:�4Comment:�

PRINT THIS ARTICLE

Request Information From Our Sponsors

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

Comments or Questions?	Article Usefulness
	5 (most useful) 4 3 2 1 (least useful)

TECHNICAL ANALYSIS

Russia Rising

Comments

SUBSCRIBE TO OUR FREE EMAIL NEWSLETTER!

SUBSCRIBE TO OUR FREE
EMAIL NEWSLETTER!