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Market Vectors Russia ETF And Price Channels

01/24/11 01:35:37 PM
by Billy Williams

There is an exchange traded fund to help you profit in the commodity secular bull market if you know how to trade it.

Security:   RSX
Position:   Hold

According to a recent interview with Dave Skarica, author of "The Great Super Cycle: Profit From The Coming Inflation Tidal Wave And Dollar Devaluation," the investment cycle has moved from paper assets such as equities to commodities and has been in play since around 2000. With rumors of high inflation on the horizon as well as high unemployment on a global scale exacerbating the problem, it appears that equities will continue to struggle and Skarica's views have some merit worth considering when approaching the markets.

In the meanwhile, gasoline continues to climb higher, food seems to suffer the effects of inflation, investors flock to precious metals such as metal to hedge against the corrosion of the dollar, the Federal Reserve continues to print money at a breathtaking place, China's appetite for raw resources proves more insatiable by the moment, and the bond market becomes more unappealing to investors. Worse, a bubble is forming in the bond market that could have disastrous effects that eventually ripple through the stock market, accelerating its decline.

But if one trend ends somewhere in the world, then it is almost a mathematical certainty that it will appear somewhere else. With financial markets in the West suffering the ill effects of the housing bubble in 2008, continuing to wear that disaster around its neck like a dead albatross, elsewhere in the world there is the rumblings of a new trend appearing.

While Skarica's outlook is worth some attention, it's important to remember that global macro views can take a long time to play out. That said, no market can outrun core fundamentals for very long and, eventually, markets must play out according to them. But for intelligent speculation, it pays to be aware of these shifts and exploit them at the appropriate time.

If commodities are set to appreciate in a bull market, then a low-risk idea is to shift your gaze to countries that can emerge as the epicenter of that new trend -- particularly, countries that are rich in natural resources that will act as fuel for the next commodity secular bull market.

Russia is a country with vast sources of oil, gold, diamonds, and other highly sought-after resources and is eager to become a world player in the next commodity boom. In order to exploit Russia's rise as a major commodity player, you can look to the RSX, the Market Vectors Russia exchange traded fund (ETF), in order to build a core position around Russia for a winning position. See Figure 1.

FIGURE 1: RSX. RSX has formed an bullish price channel before breaking out higher in early January 2011, then pulling back. Wait for RSX to build a base and then catch the move as it goes higher from there.
Graphic provided by:
Now that you have a low-risk idea and a valid market, technical analysis becomes easy and serves as a method to help you enter in the right place versus just arbitrarily buying randomly.

RSX has already been in an upward price channel for several months with symmetrical trendlines forming the basis of the channel. The lines are drawn from each extreme price level on the RSX in order to reveal the visual reference of the pattern.

Recently, in early January 2011, RSX traded up through the upper trendline of the price channel. There are two important points related to this event: first, that RSX is breaking out higher, or second, the pattern is busted and RSX will now reverse.

Both of these rules are valid given whatever the context of the security is at the time of the move. However, note that RSX did reverse back within the channel's lines after the initial breakout. This could signal that RSX is consolidating its price gains before trading higher. In that case, I would allow RSX some breathing room to let it absorb the new trading price and then catch it as it moves higher.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

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