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