Emerging Markets, Russia Breakout Should Lift US Stocks

By Adam Sarhan Mar 31, 2014 12:56 pm

The rally should also provide a boost for other risk-on markets.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

On March 27 on the Buzz & Banter, I buzzed about how the iShares MSCI Emerging Markets Index (NYSEARCA:EEM) was outperforming the S&P 500 (INDEXSP:.INX) in "A Little Dressing for the Window" (subscription required). The strong outperformance continues, and now Russia's stock market (represented by the Market Vectors Russia ETF (NYSEARCA:RSX)) is breaking out of a bullish head & shoulders bottom pattern (a.k.a. an inverse H&S pattern).

http://image.minyanville.com/assets/buzzbanter/charts/original/033114/EEM_Chart_from__1396279099.jpg

Click to enlarge

http://image.minyanville.com/assets/buzzbanter/charts/original/033114/RSX_Chart_from__1396279046.jpg

Click to enlarge,

Buy When There Is Blood in the Streets, Even if the Blood Is Your Own

The Warren Buffett of the eighteenth century, Baron Rothschild, famously said, "The time to buy is when there's blood in the streets." Rothschild made a fortune buying in the panic that followed the Battle of Waterloo, which involved Napoleon. Many people believe that the original quote was "Buy when there's blood in the streets, even if the blood is your own."

EEM & RSX Are Undervalued

In today's (politically correct) parlance, another way to apply his wisdom is to invest when valuations are attractive (a.k.a. undervalued). Michael Gayed, CFA and Chief Investment Strategist and Co-Portfolio Manager of Pension Partners, has done an excellent job of pointing out (before it was commonly accepted) that emerging markets were poised to rally. He was right on the money. Now Russia's stock market is rallying as the Crimea situation appears to have passed without an "incident."

The fact that EEM and RSX are rallying bodes well for the US stock market and other risk-on markets as well.

Want to help improve the Minyanville experience? Take our reader poll and enter to win a $100 Amazon.com gift card. To take the survey, click here.