Lumber’s decline accelerates

The price of Lumber has fallen 24% in the past 4 days, when I last mentioned its action in a topic relating to its moving averages.

Incidentally, last night decline now sees Lumber trading simultaneously at both its 50 Week Moving Average and its 200 Day Moving Average.

It is now the same price as seen in August 2000 and most recently as January 2021.

Its price has now sunk 52% in the past 5 weeks.

#meanreversion

June 18, 2021
by Rob Zdravevski
rob@karriasset.com.au

a periodic look at global oil rigs

There’s a slight increase in rigs being utilised although still notably lower than pre-pandemic numbers, let alone to the heydays of 2011-2014

mentioned in the press

It’s nice to be quoted in a recent S&P Global Market Intelligence article.

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/experts-caution-on-copper-after-decarbonization-stimulus-driven-price-boost-64381465

Natural Gas breakout is developing

6 week ago, I wrote about a pending breakout in the price of Natural Gas. (see my original post link below)

2 weeks ago, it made that break higher and has risen 10% since.

https://lnkd.in/g-RQtev

June 15, 2021
by Rob Zdravevski
rob@karriasset.com.au

Mean reversion in Lumber

Since May 10, 2021, the price of Lumber has fallen 42%.

The daily chart below shows the price falling past its 50 and 100 day moving averages and it seems to be on its way to the 200 dma, which is only 14% away.

I’ve been reminding readers about mean reversion especially following extreme parabolic upward moves as we have seen in Lumber, Hot Coil Rolled Steel, Corn, Soybeans, Bitcoin, Tesla etc etc

Macro Extremes (week ending June 11, 2021)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

Natural Gas

Orange Juice

Brazil’s Bovespa equity index

Overbought (RSI > 70)

The Commodities Indices (the CRB and Bloomberg’s)

Tin (for the 7th week)

Iron Ore (for 7 consecutive weeks)

Gasoil

Heating Oil

WTI Crude Oil

Brent Crude Oil

Lean Hogs (for the 16th consecutive week and its highest price since July 2014)

Corn (a return to the list)

the S&P 500 index

S&P 400 Mid Cap equity index

Amsterdam’s AEX equity index

France’s CAC-40 equity index (for the 9th consecutive week)

Germany’s DAX equity index

Italy’s MIB equity index (both for the 2nd week)

the Oslo, Helsinki and Stockholm equity indices (for the 3rd consecutive week)

and Australia’s ASX 200 (in its 2nd week and at its most weekly overbought since late July 2019)



The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Nil

Assets (securities) within my immediate universe which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

Extremes “below” the Mean (at least 2.5 standard deviations)

Japanese 10 Year Government Bond Yields (the granddaddy of risk indicators)

Oversold (RSI < 30)

Nil

The Oversold Quinella – Both Oversold and Traded at < 2.5 standard deviations above the weekly mean)

Nil

Notes & Ideas:

The most notable moves have mainly involved the bond market, where yields across the board have eased (meaning ‘risk is back on’ and bonds were being bought more aggressively).

This week, there are no bond yields in Overbought territory across any government debt.

We are also seeing the ‘energy complex’ continue their time in Overbought territory.

Gold moved lower after touching 2 (not 2.5) standard deviations above the mean in recent weeks, as it consolidates for now.

Other notable departures from the Overbought list are currencies and selected equity indices such as the Dow Jones Industrial Average and the KBW Banking Index, which ended a 14 week overbought streak.

So…as the ‘extremes’ list thins out, I look to identify assets which are ‘trending’ or about to develop one….before new extremes are posted.

Aside from entries in this week’s list, the global equity indices which were nearing extreme Overbought readings are South Korea’s KOSPI and India’s NIFTY.

The U.S. 10 year bond yield it yet to break above 1.75%. Yields eased further this past week from last weeks 1.55% to close at 1.46%.


Weekly movers in recently overbought commodities includes Lumber falling 18% and Soybean declined 5%, while the Baltic Dry (shipping) index rebounded 17%


And following up last week’s comments, we have seen a break higher in the Russell 2000 as it rose 2%. Small caps rising at the tail end of a large cap advance may be sign of a trap if you are chasing the riskier tail of the market.

In crypto land, Ethereum fell 13% negating the previous week’s 13% advance and still half the price from it May 10th high.

No cryptocurrencies are Oversold yet.

And lastly, Bitcoin had a benign week. It is trading 172% above its 200 Week Moving Average, which is lower from last week’s 181% reading and certainly lower when compared to its 466% peak in mid-April 2021.

June 13, 2021

by Rob Zdravevski

rob@karriasset.com.au

Ain’t no inflation, today

Notable price action in overnight markets saw Bonds being bought across the duration.

U.S. Year bond yield have fallen to 1.43% (from recent 1.65%)

Japanese 10’s are 0.05%, tightening from their recent 0.08%

and a large number of U.S. banking stocks traded down for the day

and in a range which is called an outside bearish reversal day.

This is where today’s high was higher than yesterday’s and today’s low was also lower than yesterday’s and importantly today’s closing price was below yesterday’s and in fact, many closed at their lowest point of the day. 

This suggests some lower prices in the nearer-term.

It seems the market said that they aren’t buying the inflation story.

It also says that equities are deemed risker today than they were last week.

My view is that bond yields will soon rise again (i.e. bonds will be sold) and use dips in the bank stocks to accumulate.

Why ??

Because inflation is evident. You don’t need to listen to the media or the politicians.

All you need to do is read the quarterly earnings transcript of major corporations. They are telling you what is happening at the coalface.

June 11, 2021

by Rob Zdravevski

rob@karriasset.com.au

Where to put your money

Today I was asked which asset class would I put money in?

My answer was equities and commodities. I forgot to also mention the U.S. Dollar.

This broad answer is predicated on valuation and selected commodities and currencies which are Oversold.

In other words, insist on a bargain or buy ‘straw hats in winter’.

Many other assets are either expensive or clearly in the speculative realm, thus relying on a greater fool to pay a higher price than they did….

for example, buying a house in Australia will likely mean paying a P/E of 46….

and be careful with some commodities, especially those who have doubled or tripled in price over the past 10 months.may pose a short term trap.

Regarding equities, the S&P 500 seems fairly valued and not offensively priced with a P/E of 19 (when you exclude the 6 FAANGM stocks) as displayed in the image below.

This puts it on an earnings yield of 5.3%, which 3.3 times more than the 1.58% yield on the U.S. 10 Year Government Bond.

It’s P/E Ratio is lower than pre-March 2020 and surprising to many, the S&P 500’s earnings are now 11% higher since pre-pandemic times.

Companies have been booking some handsome profits.

But my view is that index hugging is less attractive that stock-picking.

After all, many stocks have P/E’s of 11.

Alcoa is one of them.

June 7, 2021

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending June 4, 2021)


The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

Coffee

Live Cattle

Orange Juice

Brazil’s Bovespa equity index

Overbought (RSI > 70)

French & Korean Government 10 year bond yields (5th consecutive week)

The Commodities Indices (the CRB and Bloomberg’s)

Tin (for the 6th week)

Iron Ore (for 6 consecutive weeks)

Gasoil

Heating Oil

Gasoline

WTI Crude Oil

Brent Crude Oil

Lean Hogs (for the 15th consecutive week and its highest price since July 2014)

Soybeans (a return to the list)

Canadian Dollar / USD (where the CAD is exhibiting strength against the U.S. Dollar)

the Dow Jones Industrial Index

U.S. KBW Banking Index (14th consecutive week)

France’s CAC-40 Equity Index (for the 8th consecutive week)

Germany’s DAX equity index

Italy’s MIB equity index

the Oslo, Helsinki and Stockholm equity indices (for the 2nd consecutive week)

and Australia’s ASX 200 (now at its most weekly overbought since late July 2019)



The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Nil

Assets (securities) within my immediate universe which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

Extremes “below” the Mean (at least 2.5 standard deviations)

Chinese Government 10 Year Bond Yields (3rd consecutive week, of falling yields, indicating persistant buying of Chinese bonds)

AUD / GBP (signifying a strong British Pound)

Oversold (RSI < 30)

Nil

The Oversold Quinella – Both Oversold and Traded at < 2.5 standard deviations above the weekly mean)

Nil

Notes & Ideas:

The most notable observation are various commodities amongst the energy complex have reached Overbought levels.

It remains quite in Foreign Exchange land.

In last week’s note I suggested watching a host of global equity indices which were nearing extreme Overbought readings.

Indeed, we now see more indices join this week’s list.

The British Pound is strong against many currencies and within a whisker of being Overbought across a range of them.

The U.S. 10 year bond yield it yet to break above 1.75%. Yields eased further this past week from last weeks 1.58% to close at 1.55%.

After recent visits to Overbought territory, the past weeks trading has produced several outside bearish reversal’s.


This is where a security trade to higher high (than the previous week) and then makes a lower low (than the previous week) and closes below last weeks close.


Some of assets who made that list and where I look for lower prices include;


EUR/AUD, which means I now look for the Euro to weaken. Meaning, sell your Euro and Buy AUD,

Dow Jones Transport Index (after 12 consecutive weeks being overbought),
Copper (following a 22 week overbought streak),
GBP/USD, suggesting selling British Pounds and

buying US Dollars andGold (in USD).


On the risk monitoring front, I keenly watch the HSCEI index and the Japanese Yen as traded against the AUD and USD.

A month ago, I wrote a seperate note about the rise of the Baltic Dry Index when it touched Overbought extremes. Its price has  declined 25% since then.


Reiterating comments from last week’s note;


Gold as priced in USD and AUD (not in CAD) traded to 2 standard deviations (SD’s) above its weekly mean, although it’s not an ‘extreme’ as per this notes criteria of 2.5 SD’s

and we await break either way in the Russell 2000.

Even though crypto currency, Ethereum is nearly half the price it was 4 weeks, no cryptocurrencies are Oversold yet.

And lastly, Bitcoin is 181% above its 200 Week Moving Average, which is higher from last week’s 175% reading and certainly lower when compared to its 466% peak in mid-April 2021

June 6, 2021

by Rob Zdravevski

rob@karriasset.com.au

Rob Zdravevski

The effect of Biden’s Chinese investing bans

There are so many 2nd and 3rd derivative effects from this news.

https://www.bloomberg.com/news/articles/2021-06-03/biden-to-blacklist-59-chinese-companies-in-amended-trump-order?sref=qLOW1ygh

The headline screams nationalism, protectionism and death to globalisation.

Then there is worthy speculation about trade wars, military tension, broader protest by Chinese manufacturers to curtail supply to American companies and currency manipulation to occupy my time.

n.b. the Chinese Yuan is at a 3 year high versus the USD.

Albeit I understand the security concerns behind this decision but the card has been badly played.

Biden’s strategy is to win votes and maintain control of both houses at the November 2022 mid-term elections, when all 435 seats in the United States House of Representatives and 34 of the 100 seats (14 Democrats and 20 Republicans) in the United States Senate will be contested

He will do that by spending big (enriching or impressing the populous) and being tough on China. Both things Obama never did.

Biden won’t forget that in the middle of Obama’s first term, the Republicans ended unified Democratic control of Congress by winning a majority in the House of Representatives.

My mind tells me that opportunity will lie in declining Chinese stocks (it’s always interesting when there is forced selling), a rising U.S. Dollar (this will impact commodity prices) and rising U.S. interest rates.

China can weaken their currency and sell a bucket load of U.S. Treasuries. They are the largest foreign owner of U.S. debt. This will send yields higher which increases U.S. government borrowing (it’s interest bill) costs and triggers other inflationary risks (? short Manhattan property again ? )

Interestingly, the Australian Financial Review said, “Australia has not developed a similar list of Chinese companies that Australians are not permitted to invest in personally or through a company.”

Can you imagine that ? ….a government telling me if I am allowed to own shares in a company which is traded on a public market where I’ve previously been permitted to trade shares.

June 4, 2021

by Rob Zdravevski

rob@karriasset.com.au

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