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Micex Index Rally Masks Russian Bear Market: Technical Analysis

Russia’s Micex index, the best performing benchmark emerging-market measure in the past two weeks, may reverse course and extend its 16 percent decline in 2011, according to indicators used in technical analysis.

The 30-stock Micex’s 13 percent advance since Oct. 5 doesn’t mark the beginning of a rebound, Richard Ross, a chartered market technician at Auerbach Grayson & Co. in New York, said by phone on Oct. 18. The index, which had its biggest one-day advance since May 2010 on Oct. 6, is in the middle of a “counter-trend rally” disguising a “bullish to bearish reversal” that began in early March and accelerated from June to August, according to Ross.

“There’s a lot of pent-up pessimism that’s now being converted into short-term optimism and hope,” Ross said in an interview. “Ultimately, these gains will prove ephemeral, and the Micex will move lower as that structural trend asserts its dominance.”

The Micex has been trading below its 50-week moving average of 1,639.05 since the beginning of August, the first time it has been below the level for more than a week since May 2009. This is a signal that the Micex is shifting from a bull market, that began in late 2008, to a bear market, Ross said. A bear market is reached when an index declines 20 percent or more from a peak, while a bull market is attained when an index rises more than 20 percent from a trough.

Relative Strength

The index added 121 percent in 2009 and 23 percent last year, and is poised to rise 4.3 percent in October, the first monthly advance since July, according to data compiled by Bloomberg. The Micex increased 1.6 percent to 1,425.24 in Moscow yesterday, the highest level this week.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security or index.

The Micex’s relative strength index, or RSI, also points to further declines, Ross said. The Micex’s weekly RSI reached 31.1277 in the week ended Aug. 21, the lowest level since January 2009, according to data compiled by Bloomberg.

The RSI’s August decline marked the bourse’s “first confirmed sell signal,” Ross said.

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