The Latest “Day Trader” Playground

Remember the “day trader mania” when the Internet and Tech bubbles hit back in the late 90s? Remember the Chinese stock market bubble back in 2007 when daytraders couldn’t get their hands on enough China shares?

Well there’s a new “day trader playground” in town in 2009. Only this time it’s in Russia…

You see, last year was tough on the entire world, but it was especially rough on Russia. The “R” of the “BRIC’s” actually had one of its worse years ever for both stocks and its currency, the ruble. Russia is a huge commodities-driven economy with plenty of natural resources to sell to the greater world.

So both Russia’s currency and stocks crashed hard last year when both the global economy and natural resources fell off the map.

After a year of ravaged markets, Russia’s largest stock exchange, the Micex is trading for a song. The Micex trades at an incredible average of 8 times earnings! To put that in perspective, right now the MSCI Emerging Market Index’s is trading at 18 times earnings, China is at 32 times earnings, Brazil stands 24 times earnings or even India is at 18 times earnings.

Traders – particularly day traders – are coming out the woodwork to take advantage of these “deep values.” (Or at least, what they perceive to be “deep values.”) Those day traders are creating some very interesting opportunities in the Forex market at the same time. Let me explain…

Cheap Russian Stocks = MASSIVE Currency Opportunity

The retail trading volume on the Micex has surged six fold this year. In fact, the number of Russian individual trading accounts has grown to over 630,000 as of July. These accounts generate about $1.3 billion in average daily volume, up from $220 million as recent as January.

This “added” volume is attracting traders from big institutions all over the place. Most recently big-time traders from BlackRock and Templeton have been checking out Russian stocks. Why? If you’re a big fish in the sea like these guys are, you need a ton of volume in your chosen market so you can move in and out of stocks without significantly moving the market yourself.

You or I don’t have to worry about this but an institutional money manager that moves in and out of millions of shares has to consider this a lot. It limits where they can effectively invest (which is one of the reasons why they like the currency market so much).

You see, just in ONE emerging market BlackRock fund, they’re moving $1.4 TRILLION around.

In addition to the volume, the huge volatility has investors salivating too. Russia’s Micex has surged 79% this year, which is the steepest gain of any of the indexes that track the world’s 30 biggest markets.

Russian Stock Volatility Ensures Ruble Strength
as Long as the Mania Lasts!

So needless to say, all of this focus and attention on Russian’s stocks is also pushing its ruble around too.

The dollar has been dropping broadly against most currencies since March. Likewise, the dollar has been falling vs. the ruble as well. However, not only have excesses been wrung out of the USD/RUB uptrend but as recent as May, the ruble has pushed the USD/RUB into a downtrend. That’s great news for the ruble going forward. Check it out below.

Trade the Russian Stock Market Mania through the Ruble as a “Safer Play”!

So currency traders too are joining the party by pushing the ruble higher vs. the dollar while all of this “mania” exits.

As this Russian story spreads, even more foreigners and big-name traders will come to the party. That will only cause the ruble to gain further as these foreign traders have to exchange their foreign currencies in for rubles to trade stocks denominated in rubles.

Expect the ruble to continue to gain strength – particularly as key markets around the world continue to recover, global GDP numbers start to expand once again and as energy resources like oil are used to grow these recovering economies once again.

Happy Trading,
Sean Hyman

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