Monday, April 28, 2014

Russia/Ukraine and the volatility factor

Earlier on Friday, Ukrainian officials demanded that Russia explain the presence of troops massed at the border of the two countries. President Obama also spoke with allies in France, Germany, Italy and the UK, agreeing to introduce another round of sanctions against Russia for its failure to observe the Geneva accord, which was signed last Thursday.  The re-emergence of tensions between Russia and Ukraine will contribute to increased broad market volatility if the situation isn’t soon resolved.

As I pointed out in the April 14 report, the Russia ETF (RSX) still looks weak in the immediate-term and isn’t far above its March low.  Keep in mind that the last time RSX dropped in March it helped trigger the U.S. stock market decline.  As I wrote in the April 14 report, “Investors can ignore Russia for now, but if Russia’s stock market makes a new yearly low in the coming days it’s doubtful Wall Street will simply shrug it off.”  This assessment is particularly important entering next week, when RSX will most likely test the key 21.00 level and may even penetrate below it.

The latest geopolitical concerns led to some safe-haven flows into Treasuries and gold, both of which posted gains on Friday.  The 20-Year Treasury Bond ETF (TLT), which confirmed a Coppock Curve buy signal in February, was up 0.14% on Friday to make a new high for the year, while the gold ETF (GLD) gained 0.70%.  The recent firming of the gold price is another subtle indication that serious investors are starting to worry about the broad market outlook in view of increased geopolitical tensions, not to mention the continued slowdown of both China’s and Japan’s economies.

Excerpted from the Apr. 25 issue of Momentum Strategies Report]