A observation of convergence

Over the next 15-18 months, where does Bitcoin converge with its 200 week moving average?

How much does Bitcoin decline or how much does the mean ‘roll’ higher?

Probability suggests Bitcoin consolidates and digests itself lower than where it is today.

p.s. those notations serve as as a guide of the percentage Bitcoin was/is trading above its 200 week moving average.

October 18, 2021

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending October 15, 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)

Canadian 10 year bond yields

German 5 year bond yields

Copper

Russia’s MOEX equity index

And Bitcoin



Overbought (RSI > 70)

Hot Rolled Coil Steel (for the 55th consecutive week)

Aluminium

the JKM “Japan/Korea (LNG) Marker”

Natural Has

Tin

Coffee

Australian coal

Coal, Rotterdam delivery

Amsterdam’s AEX equity index

and India’s Sensex & NIFTY 50 equity indices



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

Australian 5 year government bond yields

U.K. 10 year government bond yields (Gilts)

U.S. 2 year and 5 year govn’t bond yields 

Korean 10’s

The Bloomberg Commodity Index

The CRB Index

The Baltic Dry Index

WTI and Brent Crude Oil

Gasoil

Heating Oil

Urea

Oslo’s OBX 25

USD/TRY – the Turkish Lira is at all-time low

USD/JPY (telling us of a strong USD and a weaker Yen)

(It’s the weakest since early 2019, so sell USD and Buy JPY and use it to buy cheap Japanese equities.)



Assets (securities) 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)

South Korea’s KOSPI equity index

Germany’s DAX index

EUR/GBP – telling us the Euro is weaker and we have a strong British Pound, so sell your GBP and Buy EUR (there are some bargains amongst European equities) 



Oversold (RSI < 30)

None



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

None



Notes & Ideas:

This past weeks price action was dominated by commodities again and again with some gains in equities as some bounced from recent lows. We’ve seen a break from the past 6 weeks of rising bond yields which were highlighted in the past 2 weeks editions of “Extremes”.

The larger advancers over the past week comprised of; 

Strait Times 2%, Nasdaq and DJ Transports 2.8% & 2.5%, FTSE 100 2%, OMX Helsinki 2%, Stockholm 3.3%, Oslo 2.6%, Copenhagen 3.2%, Sensex 2%, SOX 2.1%,  S&P Midcap 400 2.2%, nasdaq 2.2%, Nikkei 3.6%, AEX 3.7%, CAC 2.6%, DAX 2.5%, HSCEI 2.2%,  Hang Seng 2%, KOSPI 2%, Uranium 22.5%, Dutch Gas 6.9%, Aust. Coal 2.3%, Rotterdam Coal 4.3%, Brent Crude 2.8%, WTI Crude 3.7%, Aluminium 5.3%, Silver 2.8%, Gasoline 5.1%, Platinum 3%, Nickel 3.8%, Tin 4.6%, LKM LNG 6.8%, Lumber 5.4%, Heating Oil 4%, Copper 10.6%, Gasoil 4.2% and Urea 2.8%, adding to last week’s 7.3% gain and the 44% advance in the week prior.

The group of decliners included China Coal (4%), Sugar (2.4%), Orange Juice (5%), Natural Gas (2.8%), Cocoa (5%) and the Baltic Dry Index and Nickel fell 2.5%.

Key prices I continue to watch is,

whether Gold in AUD holds A$2,312 support level,

U.S. 10’s not breaking above 1.62% for the time being,

the DXY index staying above 93.10,

if AUDJPY breaks above resistance of 85.11,

Whether the AUDUSD breaks above 0.7510 or below 0.7270

I was wrong in last week’s notes where I predicted the FTSE 100 and Italy’s MIB would break lower. Instead, they followed the week’s global equity rally where they rose ~ 1.7%.

In fact, many specific individual stocks within client portfolios and my immediate investing universe saw weekly advances in the 5% or higher. Albeit many bounced from some daily (not weekly) oversold levels and other stocks rallied as a result of stronger than expected earnings (Alcoa rose 15% on Friday alone), my warning is that these types of surges aren’t really supposed to be occurring in the current backdrop. Some software SaaS stock rose 11%-15% for the week.

Persistent > 5% weekly moves in stocks and commodities aren’t always a healthy signal. Look through the joy of surging prices with eyes wide open.



October 17, 2021

by Rob Zdravevski

rob@karriasset.com.au  

Buy Turkish Banks?

Turkish President Erdogan fires three more Central Bank governors overnight.

He fired the Central Bank Governor in March 2021.

Erdogan wants interest rates. These three guys express a bias for higher interest rates.

So here is the trade;

Sell USD / Buy Turkish Lira (its the cheapest it has been forever).

then,
choice # 1 – buy a bank term deposit for 13%-15%

choice # 2 – buy Turkish 10 year government bond which are yielding 18% p.a.

or choice # 3 – buy shares in one (or a few) of the top 5 banks in Turkey.

IS Bank for instance, is the oldest and 2nd largest in terms of assets.
Its equity has a market capitalisation of equiv. US$2.5 billion, trailing P/E ratio is 3 times, forward P/E estimates is 2.3 times and its Price to Book ratio is 0.35.

The latter is probably safer than an Australian mining exploration stock.

October 14, 2021
by Rob Zdravevski
rob@karriasset.com.au

https://www.bloomberg.com/news/articles/2021-10-13/turkey-s-erdogan-meets-central-bank-governor-after-lira-rout?sref=qLOW1ygh

more on Fortescue Metals

Here is an ongoing series of posts about Fortescue Metals (FMG.AX) and how it has traded at percentage extremes above it 200 week moving average. This helps tell you when chasing a stock higher becomes perilous in the face of a mean reversion, often when the tide and sentiment turns at its worst.

I don’t hate the stock nor the company. I’m just calling it as I see it.

For more than a year, FMG.AX has defied gravity.

If we see a break below $13.71, sees the stock visit $11.70 – $12.00, failing that it may test the $7.00 level.

Absurd perhaps but not impossible.

October 13, 2021

by Rob Zdravevski

rob@karriasset.com.au

#ironore #fmg

Rising GDP means higher inflation and interest rates

Below is an extract from this week’s IMF economic forecast report showing World GDP is set to rise 21% over the next 5 years.

This is an average of 4.2%, which is a good 35% higher than the post GFC GDP growth average from 2013-17.

So, how can the world’s economy grow by one-fifth in short period of time, without any material inflationary pressures when companies are telling us they see rising costs, constraint in capacity and the need to increase selling prices?

We will see a huge amount demand for production output constrained by production supply.

3 into 1, just won’t fit.

I think central banks in the ‘developed world’ are behind the curve.

Russia, Mexico, Brazil are commodity producing and commodity sensitive economies. Their central banks have been raising rates citing reasons to curb the rising cost of living.

Inflation is a tax that the ‘poor’ can’t afford to pay.

Their citizens are amongst the least indebted in terms of personal debt to GDP, so rising interest rates doesn’t threaten the value of their real estate and financial asset values unlike the sky-high indebted citizens of Australia, Canada, the U.S. and the U.K.

(see the other image below)

Interestingly, South Korea, Norway and New Zealand are the first of the developed world economies to raise interest rates. Their central bank reasons were to curb their respective country’s soaring household debt and home prices. Not the cost of living……

October 13, 2021

by Rob Zdravevski

rob@karriasset.com.au

#economy #interestrates #growth #realestate

Europe is concerned about China decoupling

The main message of this report is China ‘channelling’ a macro, trade, political and digital decoupling with Europe.

This theme takes some thinking. Many thought China would find friends or solace amongst Europeans amidst a heated spat with the U.S.

Silk Road rhetoric aside, China is taking a binary road instead. Either they are embracing globalisation or nationalistic protectionism. The latter seems to be the current path.

“It is this blend of China’s conditional coupling, a vast state-aid apparatus and protectionism extended to national

champions, and Beijing’s new-found self-confidence in its non-convergence with Organisation for Economic Cooperation

and Development (OECD) norms and principles that is driving the current ‘crisis of interdependence’ with China.”

October 13, 2021

by Rob Zdravevski

rob@karriasset.com.au

#china #oecd #decoupling

Long Oil is crowded

I’m advising clients to tune in where the noise is and where the herd is gathering.

Albeit, this is subjective and certainly more art than science, it’s important to identify the “crowded trade” and asking yourself if you are about to be the marginal buyer.

For example,

“everyone” is going Long Crude Oil, Natural/LNG Gas and Coal.

and “nobody” wants to buy Chinese equities nor Gold.

There is merit considering a contrarian result.

With Brent Crude Oil currently $83, I ask myself if it rises $20 or falls $20 from here?

In the coming months, I say it sees $63 rather $103.

October 13, 2021

by Rob Zdravevski

rob@karriasset.com.au

On my mind and radar

AUDUSD at resistance levels, its rising within a weekly downtrend,

Looking for Uranium back to $33, its now $38,

A nice rise in Alibaba, will add to HK$149 and HK$140,

U.S. 10’s hit my 1.62% interim ceiling,

Energy complex is overbought and trading at extremes,

You’re at the wrong end of the move if you’re going long now,

Be careful of parabolic moves and,

chasing the herd and pending mean reversions,

the S&P 500 target is 4,022 (a further 7.7% lower),

forget the index for a moment,

some Japanese, European & U.S. stocks are oversold,

selling strong USD to Buy JPY,

selling strong GBP, buy EUR,

remember when price moves are in the broad news, its too late,

to be continued,

October 12, 2021

by Rob Zdravevski

rob@karriasset.com.au

Market isn’t believing the hype

The charts below overlay the stock price of Australia’s largest independent coal miner, Whitehaven Coal (WHC.AX) and the Australian premium coking coal price.

The opportunity of leveraged cashflow and profits that an operational company offers is the reason many investors own shares in such companies when trying to benefit from a move in an underlying theme or commodity.

The (under)performance of Whitehaven over the 2 timeframes shown below, especially in light of the recent surge in coal prices tells me that the market isn’t a believer.

Coinciding with other overbought and extended extremes, selling WHC.AX last week around $3.60 was prudent.

Today’s $3.35 is still OK to do so.

Let’s see how it looks when it pulls back to $2.40 or so.

October 12, 2021

by Rob Zdravevski

rob@karriasset.com.au

#WHC #coal

Where is the pendulum

Here is a weekly chart of the S&P 500 over a period of 28 years.

My notations show the extreme percentages that the SPX was trading above its 200 week moving average. It was 43% a couple weeks ago and is at a relatively high 36% today.

I’m trying to show where we are in the ebbs and flow of price movements and not chasing something at the highest point of the pendulum’s arc.

October 12, 2021

by Rob Zdravevski

rob@karriasset.com.au

#spx #probability

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