Macro Extremes are being seen in….

28 July 2020

by Rob Zdravevski

The U.S. Dollar (DXY, 93.93) is heavily oversold on a Daily basis

The AUD, EUR, GBP, NZD are all overbought. There is a prospect of an additional spurt higher in these currencies in the coming days, however you are likely to be squeezing the last juice out of this trade.

Tactically, I have been selling AUD / Buying USD at 0.68 and 0.71 and will do some more if it shoots to ~ 0.74

Silver ($24.23) is overbought on a Daily and Weekly basis

On a Weekly basis, the last two times Silver has seen these overbought levels were in mid-August 2019 and July 2016.

Copper ($2.90) is mildly overbought and it’s my preferred Short idea in the broader metals complex.

Gold ($1,935) is heavily overbought on a Daily and Weekly basis

Previous moments when Gold was this “overbought” were in July-August 2019 and July 2016. Beyond that, you’ll need to go back to August 2011 to find a similar reading.

I was wrong in the previous Gold short call in May, 2020 from the $1730 mark. That trade was closed at a 2% loss, at $1765.

Re-entering the Short Gold trade offers good probability though I think as mentioned above, Short Copper is a better trade considering the research I have done toward its relationship to price action I’m seeing in the U.S. 10 year Treasuries.

On the Equity Index front, the Nasdaq 100 10,674) has registered an extreme overbought reading in the past week, similar to that seen in February 2020.

Adding to this fact, that the Nasdaq 100 is trading at 50% above its Weekly 200 Daily Moving Average, which I consider “stretched” as this percentage spread hasn’t been seen since October 1999.

Keep in mind, that the index then fell 10% before doubling into the month of March, 2000.

It’s still worthy to note that trading at 50% above its Weekly (a long-term measure, not Daily) is a significant fact not having occurred for 21 years.

On a more subjective view, 

the narrowing breadth in U.S. stocks,

lack of confirming, mimicking new highs in the Russell 2000, Banks, Transport, Dow Jones adds weight to the S&P 500 turning lower,

the strength in the S&P 500’s uptrend is waning and losing steam,

recent aggressive buying in US Treasuries and more so EUR 10’s signify a more defensive stance,

and the “risk” indicator being the AUDJPY is soon indicating “risk-off”.

These (amongst other indicators) are confirming my cautious stance and justification of a 60% cash holding in client equity portfolios.

I don’t have any “macro” buy signals out there, however on a specific stock front, there are ideas we are close to accumulating.

* this is not personal advice

* read my disclaimer

* please seek your own advice