rob zdravevski's blog

Macro Extremes (week ending August 12, 2022)

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

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

AUD/GBP

Overbought (RSI > 70)

Dutch TTF Gas

Japan Korean LNG Marker price

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

Istanbul Stock Exchange



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

Japanese 10 year government bond yields

U.S. 10 year minus 5 year government yield spread

Oversold (RSI < 30)

U.S. 10 year minus U.S. 2 year government bond yield ‘spread’

U.S. 5 year minus U.S.3 month government bond yield ‘spread’

Hot Rolled Coiled Steel

Tin

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

None

Notes & Ideas:

This big news over the past week was an extension in the equities advance which was mainly appearing in North American markets and the strength in many commodities.

The feature in the latter was amongst the energy complex.

In last week’s edition of Macro Extremes, I wrote,

“Now that Gasoil and Crude prices have fallen 30% from their recent highs, Crude Oil specifically is near an interim low and due for a ‘bounce’.

I’ll look for WTI Crude and Brent to trade down to $85.50 and $92.00 respectively.”

That bounce did occur over this past week and WTI Crude and Brent traded near but not quite down to those targets. For example, Brent touched $93.07.

Resilient to recent energy price retracement has selected gas prices.

Over the past 12 weeks, the Japan Korean LNG Marker has risen 137% while the Dutch (European) TTF Gas price has climbed 150% in only 9 weeks.

Lately, I have been writing about how the lows of this recent trading rally were seen in mid June 2022 and Buy signals were appearing in Small and Mid Cap indices.

Since then, the MidCap 400 has rallied 19% and the Russell 2000 has soared 23%, of which 5% occurred in this past week. This adds to the argument of being careful chasing momentum at the tail end of what I see as an interim wave.

Incidentally, that Russell 2000 is still 18% below its November 8, 2021 peak.

This also comes from the playbook that small caps peaked early and likely ‘troughed’ first. There was much damage done in the small caps.

Lastly, the U.S. yield curve remains inverted for the 6th week in a row and Oversold for 4 consecutive weeks.

The larger advancers over the past week comprised of; 

Australian Coking Coal 5.8%, Rotterdam Coal 11.8%, Bloomberg Commodity Index 4.5%, Baltic Dry Index 2.1%, Cocoa 3.9%, China Coal 9%, WTI Crude 3.5%, Gasoil 5.6%, Copper 3.3%, Heating Oil 9.4%, JKM 16.2%, Coffee 6.2%, Lumber 22.9%, Natural Gas 8.7%, Palladium 4.3%, Platinum 3.8%, Gasoline 6.7%, Sugar 3.7%, Silver 4.6%, Cotton 12.6%, Dutch TTF Gas 5%, Brent Crude 3.7%, Corn 4.8%, Oats 5.4%, Soybean 3.2%, Wheat 3.9%, KBW Banking Index 5.8%, Dow Jones Industrials 3%, DJ Transports 3.7%, IBEX 2.9%, BOVESPA 5.9%, S&P Midcap 400 4.5%, Nasdaq 2.7%, Helsinki 2%, Russell 2000 4.9%, Sensex 1.8%, S&P 500 3.3%, TAIEX 1.7%, Toronto’s TSX 2.9%, S&P SmallCap 600 3.9%, Nasdaq Composite 3.1% while Australia’a ASX 200 only rose 0.24%.  

The group of decliners included;

Nickel (2.5%), Urea (U.S. Gulf) (2.5%)

August 14, 2022

by Rob Zdravevski

rob@karriasset.com.au  

ASX 200 short term rally is done

The short-term rally in the ASX 200 is done (or almost).

It looks exhausted at its current price of 7.057 points.
I may give a 10-20% probability of an additional 2.2% spurt up to 7,215, but the 10% rally from its June 20, 2022 low has satisfied my milestones and targets and I think the ‘fat part’ of the trade has been had.

I’ll wait for a retracement to between 6.740 and 6,820 and check on the velocity of the pullback before considering re-entering this Index.

August 11, 2022
by Rob Zdravevski
rob@karriasset.com.au

Synchronised Copper lows precede a 35% spike

Today BHP makes a bid to buy Australian listed, OZ Minerals (OZL:ASX) who happens to be predominantly a copper miner.

OZL’s stock price leaps 34%.

The board is rejecting the bid.

I think they should take it.

Recently, I wrote about the oversold nature of fellow copper miner, Sandfire Resources.

https://robzdravevski.com/2022/07/18/preview-to-the-long-copper-trade/

Sandfire’s stock price has risen 38% from its mid July 2022 low.

The price of Copper has climbed 40% since then.

In fact, the price of Chilean copper miner, Antofagasta (listed in London), Sandfire Resources, OZ Minerals and the price of Copper all exhibited my trifecta of a mean reversion to its 200 week moving average, trading to 2.5 standard deviations and registering a weekly Oversold RSI reading.

Those 3 charts are posted below.

August 8, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending August 5, 2022)

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

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

None

Overbought (RSI > 70)

Dutch TTF Gas

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

None



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

Japanese 10 year government bond yields

Oversold (RSI < 30)

U.S. 10 year minus U.S. 5 year government bond yield

Hot Rolled Coiled Steel

Tin

Oats

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

The U.S. 10 year minus 2 year government bond yield spread.

Notes & Ideas:

This big news over the past week was continued weakness in energy prices and shipping rates. We also experienced the mildest and quietest week in global equities for more than 2 months. It certainly felt that way too.

It was a week to not chase the momentum higher, not initiate any meaningful positions and to trim and sell those assets that have given you a fortuitous return or allowed you to a second chance to recoup some capital.

There was plenty of warning about the pending decline in energy prices.

I was cognisant of Oil’s ‘high’ price as expressed in these posts.

https://robzdravevski.com/2022/06/30/reviewing-an-oil-call-from-12-months-ago/

https://robzdravevski.com/2022/05/20/selling-u-s-oil-stocks-now/

And earlier this week I mused what if Oil fell to $66

https://robzdravevski.com/2022/08/04/and-if-oil-fell-a-further-25/

I have also hinted at lower diesel prices in this post.

https://robzdravevski.com/2022/07/13/positioning-in-trucking-companies/

Now that Gasoil and Crude prices have fallen 30% from their recent highs, Crude Oil specifically near an interim low and due for a ‘bounce’.

I’ll look for WTI Crude and Brent to trade down to $85.50 and $92.00 respectively.

Incidentally, Gasoil (diesel) has fallen from $1400 to $990 (a metric ton) over the past 7 weeks. Over the same time WTI Crude has declined from $123 to $89. It’s interest to ‘hear’ the silence in the financial media, as opposed to the noise heard when prices were barreling skywards only a few months earlier. 

There is merit to identifying the ‘mean’ are and cancelling out the noise.

The U.S. yield curve remains inverted for the 5th week in a row and Oversold for 3 consecutive weeks.

Keep in mind that when the yield inverted 6 weeks ago, I had earlier written a note citing that such an occurrence is beneficial for the longer term accumulation of the S&P 500.

https://robzdravevski.com/2022/06/10/all-is-good-in-the-hood/

And this article was written on the day the S&P 500 ‘bottomed’ hinted the same attractive prospects for the S&P 500

https://robzdravevski.com/2022/06/15/gold-to-oil-ratio-tells-a-different-story/

Since then, the S&P 500 has rallied 14%.

Over a similar timeframe, the KOSPI and ASX200 have risen 9.4%, the Russell 2000 has advanced 17% while the Nasdaq Biotechnology Index has soared 25.4%.

Today, I think the S&P 500 is closer to a ‘trading sell’ and while the longer term accumulation position remains my stance, tactically I think we’ll see lower prices again, a double dip testing recent lows and a safer opportunity to buy or add to positions.

The next 12 months should prove a notable moment to build an equities portfolio of world class businesses at much more reasonable and palatable valuations.

The larger advancers over the past week comprised of; 

Australian Coking Coal 8.1%, Iron Ore 2.4%, JKM LNG 5.8%, Orange Juice 6.3%, Platinum 3.9%, Sugar 2.3%, Dutch TTF Gas 2.8%, Uranium 1.9%, Rice 2.7%, BOVESPA 3.2%, KOSPI 1.6%, Nasdaq 100 2%, Russell 2000 1.9%, SOX 2.9%, STI 2.2%, Istanbul 6.3%, Nasdaq Composite 3.3% and the Nasdaq Biotechnology Index soared 6.8%.

The group of decliners included;

Aluminium (2.7%), Rotterdam Coal (2.3%), Bloomberg Commodity Index (3.3%), Baltic Dry Index (17.7%), China Coal (5.7%), WTI Crude Oil (9.7%), Gasoil (10.5%), Heating Oil (11.3%), Hot Rolled Coil Steel (4.3%), Coffee (3.6%), Lumber (9.1%), LNG (6.6%), Natural Gas (2%), Gasoline (8.3%), Silver USD (2.2%), CRB Index (3.8%), Brent Crude (9%), Urea M/E (3.7%), Oats (8.4%), Soybeans (4.1%), Wheat (4%), MOEX (7.2%) and Copenhagen’s OMX 25 Index fell 2.2%. 

August 7, 2022

by Rob Zdravevski

rob@karriasset.com.au  

Getting ready for the ‘safer’ buying lows

If you are in the business of accumulating equities over a longer period of time, for the longer term…….

then the vertical lines show the significance when the Japanese 10 year government bond yield (JGB) is (on a weekly chart) simultaneously OVERSOLD and trading 2.5 standard deviations BELOW its rolling weekly mean……

because the S&P 500 also then registers a notable LOW.

There have been 9 such moments over the past 15 years when probability was on your side to initiate, nibble or add to your holdings.

This is the antithesis note to the immediate previous post.

https://robzdravevski.com/2022/08/06/looking-for-peaks-in-equity-markets/

Today, the JGB’s are trading below 2.5 standard deviations but they are NOT simultaneously oversold.

I am getting ready for the monumental accumulating opportunity over the coming 12 months.

August 6, 2022

by Rob Zdravevski

rob@karriasset.com.au

This is a rally that you rent….not own.

Since the June 16, 2022 lows, the Nasdaq 100 has rallied 19%.

Some stocks have soared 25% or more.

My articles between mid-May and mid-June wrote about the troughs and lows that I’m seeing in various markets.

https://robzdravevski.com/2022/05/21/a-different-way-looking-at-the-nasdaq/

https://robzdravevski.com/2022/05/20/a-rare-oversold-moment-for-the-sp-500/

https://robzdravevski.com/2022/06/16/south-koreas-kospi-is-giving-buy-signals/

In fact, my May 24th, 2022 newsletter collated a host of the articles written highlighting these oversold buying signals.

https://mailchi.mp/karriasset/buy-signals-appearing

Over the past few days, I’ve been divesting selected positions which are exhibiting ’selling tendencies’.

This doesn’t redefine my investing style and strategy as a ’trader’.

And the emphasis is on selected holdings.

This note written 5 days ago was a preview to my current selling thoughts.

https://robzdravevski.com/2022/07/31/benchmarking-sucks-and-a-safer-time-to-buy-ahead/

I have been asking myself if the stocks in portfolios are ones that I’m ‘dating’ or ‘marrying’…..

and I remind myself to not confuse fortuitousness with any type of genius.

A 15%-20% return within 4-6 weeks is more than adequate.

Heck, it’s 2 years worth of return when comparing to a normalised, long term average and we are facing lower growth in the economy.

Over the past few days, I’ve been divesting selected positions which are exhibiting ’selling tendencies’.

Such ’tendencies’ and a rising probability of a ’trading peak’ is shown in the Nasdaq 100 Index as seen in the 2 charts below.

The Daily chart shows the Nasdaq 100 trading up to 2.5 standard deviations above its daily mean and back to (above) its 100 day moving average. To compliment the case, it is within a whisker of being overbought on its daily RSI indicator.

The weekly chart shows the NDX rallying to its rolling weekly mean and coincidentally touching its 26 week moving average.

Beyond this, the ’set-up’ in my other indicators just don’t marry up to suggest an extension of the recent rally in certain securities or indices,

hence, I’m only renting, not owning.

August 5, 2022

by Rob Zdravevski

rob@karriasset.com.au

Perth much healthier than ‘sister’ oil & gas cities

Here is another example of framing a news story.

Today’s headline is;

“Perth office vacancy highest in nation”

August 4, 2022 –  Perth’s office vacancy rate has grown to 15.8 per cent in the past six months, up 0.8 per cent since January…6 months earlier, the news was that vacancy rates had fallen.

3 Feb 2022 — Perth’s CBD office vacancy rate has fallen to 15 per cent. Perth’s CBD office vacancy has fallen in the past six months but is the second …and previously we read;

5 Aug 2021 — Vacancy rates also improved across Perth office markets…

1 June 2021 — The real Perth CBD office vacancy rate is closer to 15% when the level of static vacancy and buildings which are about to be withdrawn from ..
Does 15% or 15.8% really matter.

It’s a real shame that news stories don’t continue to elaborate that Perth has the nations highest proportion of C & D grade buildings which doesn’t help the numbers when reporting on “prime CBD properties”.

I’d like to see what the vacancy rates are for Class A & B buildings.

In July 2021, I wrote this note as Calgary saw office vacancy rates hit 24%.

https://robzdravevski.com/2021/07/26/lets-move-to-calgary/

Today, Calgary’s CBD vacancy rate is in the vicinity of 32%, while Houston’s is 24%.

We love a good headline in Australia.

A little perspective is also good.

August 4, 2022

by Rob Zdravevski

rob@karriasset.com.au

And if Oil fell a further 25%

To follow the previous post, this chart shows you the correlation of the AUD/JPY and the WTI Crude Oil price.

What would inflation, interest rates, company margins etc etc look like if Oil fell to $66.50 per barrel by New Years Day 2023 ?

August 4, 2022

by Rob Zdravevski

rob@karriasset.com.au