Macro Extremes (week ending March 19, 2021)

At some time during the past week, the following assets (on a weekly timeframe) registered either Overbought, Oversold or traded more than 2.5 standard deviations either side of its rolling mean.

There are no assets (securities) in my immediate universe which are either Oversold (where the RSI is < 30) and/or trading at least 2.5 standard deviations below its mean.

Everything else in my list is in the “Overbought” territory

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

USD/JPY (The Yen is weak relative to the U.S. Dollar)

Dow Jones Industrial Average (the ‘most’ since September 2018)

Overbought (RSI > 70)

AUD / JPY (for the 3rd consecutive week)

Swedish, British, New Zealand and Australian 10 year bond yields 

the CRB Index and the Bloomberg Commodity Index (for the 7th consecutive week)

Copper (for the 6th consecutive week)

Tin

Lean Hogs

Corn

Soybeans

Nikkei 225

S&P MidCap 400 (2nd consecutive week)

U.S. KBW Banking Index (3rd consecutive week)

Dow Jones Transport Index (again)

Stockholm OMX 30 Index (Volvo, Assa Abloy and Electrolux have big weeks)

Bitcoin & Ethereum

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

Korean 10 year bond yields

Canadian 10 year bond yields

U.S. 5 & 10 year bond yields (i.e. bonds are being sold heavily, thus inversely yields are rising)

Aluminium

Notes & Ideas:

The spread between the 2 year and 10 year bond yield continues to widen, now sitting at 1.52%, something not seen since September, 2015.

Although the bigger macro story is not the ’steepening’ of the yield curve, it is more so that 10 Year bond yields have Quadrupled in the past 12 months, as described in a recent thesis.

The crowded trade is being Short 10 year Government Bonds. I like the opposite. 

Specifically, Buying the 5 Year Bond, meaning I think the yields will fall from its current 0.87% back to 0.54%.

Korean and Canadian bond yields have been overbought for 4 consecutive weeks and the U.S. 5’s and 10’s overbought streak is now at 6 weeks.

The previously unloved “long Gold” trade has garnered some popularity as Gold (in USD) held US$1,677 and risen 4% to US$1,740;

while AUD Gold bounced 3% from its A$2,189 low.

Inversely, over the past week, Crude Oil corrected its overbought ‘extreme’ by falling 11% at its lowest level. Brent never managed to close the week above $70, in order to allow it to entertain the $74, $76 and $82 region. 

Accordingly, downward moves in Crude, Heating Oil and Gasoil resemble a reversion to the mean.

France’s CAC-40 and Germany’s DAX are approx. 2.5% away from recording ‘extreme’ readings.

China’s Shanghai Composite has seen its lowest weekly close since December 14, 2020.

The weak Yen encourages buying, especially using your Strong USD or AUD. 

p,s, there are some interesting Japanese stocks in my equities universe.

And, Bitcoin is only trading at 443% above its 200 Weekly Moving Average, down from last week’s 500% stretch.

March 21, 2021

by Rob Zdravevski

rob@karriasset.com.au