12/17/14   Hey Putin, How Do You Like Those Apples?

Editor’s Corner

Ron Rowland

Most of the world’s stock markets are having a tough time.  Our global rankings demonstrate this quite clearly.  However, our ranking categories focus on broad regions and large countries.  Despite the overwhelmingly negative tone displayed in our rankings graphic, there are some specific countries doing much worse.  Russia is the most obvious example.

Russia’s current woes began earlier this year when Putin’s meddling in the affairs of Ukraine brought on strong rebuke from world leaders and stiff economic sanctions.  Those events weakened Russia, but since the country was still able to sell its oil at relatively high prices, it was managing to keep itself afloat.  Then crude oil prices started to decline, eventually plunging more than 40%, and the calculus of Russia’s economic viability changed dramatically.

When a country goes into a tailspin, its currency tends to suffer.  Lower stock prices are causing investment capital to leave Russia, which in turn is putting pressure on the ruble, which translates into even lower stock prices.  It’s a classic death spiral, and Russia is caught in the vortex.

U.S.-listed ETFs investing in Russia reflect a combination of stock price performance and the strength of the ruble in comparison to the U.S. dollar.  The iShares MSCI Russia Capped ETF (ERUS) dropped more than 20% the past week.  It is down more than 34% since late November and has lost more than half its value so far in 2014.  Traders with an appetite for risk can play the leveraged Russia ETFs.  Direxion Daily Russia Bull 3x (RUSL) plunged more than 50% this past week, even after accounting for a 7% bounce yesterday.  It is down nearly 92% for the year.  Traders who correctly anticipated the plunge in Russia have profited immensely from Direxion Daily Russia Bear 3x (RUSS).  This ETF zoomed 64% higher the past week and has climbed more than 183% in the past three weeks.  If you timed it right, and bought on July 9, you would now be sitting on a sweet 352% profit.  Not bad for less than half a year.

The last FOMC meeting of 2014 concluded today.  Speculation leading into the session surrounded whether or not the Fed would remove “for a considerable period” from its statement.  Indeed, the phrase was removed and a new description of “patient” was substituted in regards to when borrowing costs might move up.  The committee claims the new language is consistent with the old and is still in no hurry to hike rates.

Investor Heat Map: 12/17/14

Sectors

Real Estate completed its climb to the top.  It was in first place 28 weeks ago and then fell to ninth by mid-June.  It climbed as high as second in August, only to fall to tenth and sit there through most of September.  It’s been a rocky road for Real Estate, which makes holding this position a proposition for only the hardiest of investors.  Health Care lost more than half its momentum and slid down to second place after six weeks in first.  Utilities, a defensive sector, displayed its defensive properties by improving its ranking position by three spots.  Consumer Staples, another defensive category, held steady in fourth.  Consumer Discretionary climbed two places, Financials fell three, and Technology slipped two.  Industrials and Materials were both in the green a week ago but are now in negative trends, and Materials is already deep in the red.  Telecom lost momentum but didn’t fall any further in the rankings.  If you thought things couldn’t get any worse for Energy, then you were proven wrong this past week.  Eventually the selling will be overdone and a wonderful buying opportunity will emerge, but prepare for some false starts.

Styles

Most of the air, also known as momentum, came out of the market this past week.  The eleven style categories were solidly in the green a week ago, and today they are all squished flat.  Small Cap Growth and Micro Cap are clinging to their last little bits of positive momentum.  Small Cap Growth grabbed the top spot a week ago, and Micro Cap surged from tenth to second this week.  However, Micro Cap’s move is probably not as impressive as it appears since it accomplished this feat by losing less than the other categories.  The high compression across the momentum readings is also contributing to dramatic shifts.  Nine categories flipped over to the red, although none have entered steep downtrends.  The Growth categories remain stronger than Value in all capitalization segments, with only Micro Cap stopping the trio from a sweep of the top three spots.

Global

China, the U.S., and World Equity remain 1-2-3 respectively, although their positive momentum has disappeared.  China is now registering a zero trend, the U.S. is slightly negative, and World Equity is already in a steep negative trend.  Japan and Europe swapped places as both went from barely positive to deeply negative.  The lower categories all fell deeper in the red despite seeing currency improvements over the past week.  The U.K., Pacific ex-Japan, Emerging Markets, and Canada are in extremely bearish modes with intermediate trends of minus 40% (annualized) or worse.  Latin America is on the bottom with a clearly unsustainable momentum value of -97.

Note:

The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

 


“Based on its current assessment, the committee judges that it can be patient in beginning to normalise the stance of monetary policy.”

FOMC Statement 12/17/14


DISCLOSURE

© 2014 AllStarInvestor.com All Rights Reserved. Protected by copyright laws of the United States and international treaties. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. All Star Investor employees, its affiliates, and clients may hold positions in the recommended securities.

Distribution is encouraged. Please do not alter content.