It’s a sellers market.

It’s important to know when not to pile in and not follow the crowd.

Locking in high prices is my first thought. The other side of this is to figure out who and what is affected when prices materially revert towards their mean and what scenarios and opportunities arise.

The list below shows the percentage that selected commodities and equity indices are trading above their 200 week moving average.

n.b. 200 weeks is taking a measure over a reasonably long term.

When mainstream media and the broader crowd suddenly becomes an expert in European gas prices and the cost of shipping containers across the world, it is prudent to incorporate probability and mathematics into your decision making.

I don’t spend time trying to call a crash or corrections but rather identify not being the marginal buyer and to observe where the pendulum’s arc is…….and not get caught when it swings the other way.

This is an exercise of watching the exuberance of the crowd as they try to squeeze out the last of the gains, well after the ‘fat part of the trade’ has been seen.

In other words, I’d prefer to ‘buy straw hats in winter’ or perhaps ‘buy natural gas in summer’.

Incidentally, a reading of > 15% can start to signal that prices are starting to become ‘stretched’.

Dutch Natural Gas (TTF) 367%

JKM LNG 338%

Rotterdam Coal 197%

Baltic Dry Index 194%

Urea 147%

Australian Coal 125%

Hot Rolled Coil Steel 119%

Natural Gas 87%

Semiconductor Index 75%

Uranium 71%

Coffee 71%

Nasdaq 100 63%

Nickel 53%

Copper 52%

Tin 52%

Gasoline 48%

WTI Crude 48%

Aluminium 47%

Heating Oil 43%

Lumber 41%

S&P 500 41%

Sugar 40%

Brent Crude 39%

Wheat 37%

Gasoil 37%

CRB (commodities) Index 33%

South Korean KOSPI 25%

Nikkei 225 22%

Iron Ore 17% (was 120%, price has halved in 3 months)

Gold (in USD) 16%

ASX 200 16%

Platinum 14%

Cattle 11%

Lean Hogs 7% (was 79%, prices halved in 4 months)

Cocoa 4%

and the few which are trading below their 200 week moving average

HSCEI (15%)

Hang Seng (5%)

Orange Juice (1%)

October 22, 2021

by Rob Zdravevski

rob@karriasset.com.au