Macro Extremes (week ending December 3rd, 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)

Lumber

Overbought (RSI > 70)

U.S. 2 year bond yields

Turkish 10 year bond yields (now yielding 20.5%)

the JKM “Japan/Korea (LNG) Marker”

Coffee

Cattle

Tin

Urea 

and the U.S. Dollar (DXY) Index

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

None

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)

Hot Rolled Coil Steel (HRC) – now 17% below its recent high

Gasoline

AUD/USD (suggesting a weaker Aussie versus the USD)

GBP/USD

SEK/USD

The Hang Seng equity index

And Spain’s IBEX equity index



Oversold (RSI < 30)

None

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

The difference between the U.S. 10 year bond yield minus the U.S. 2 year bond yield (which is at its lowest since July 9, 2018)

TRY/USD – the Turkish Lira is historically weak



Notes & Ideas:

The difference from last week’s edition is that Chinese 10 year bond yields and the Nasdaq 100 are no longer Overbought and Iron Ore and the EUR/USD aren’t Oversold anymore. The Euro is still in my buying range.

It’s worthy to note that last week I commented about the outside bearish reversal for U.S. equity indices. Prior to that, these indices have also appeared amongst the overnight extremes over the past month.

Although picking the moment to sell is a seperate analysis and discipline, this weekly note is actually designed to help you understand when NOT to Buy (in the recent case of U.S. equity indices) at the recent extremes they were exhibiting.

The S&P 500 only fell 1.2% for the week and is 4.3% below its recent high. The Nasdaq 100 has fallen 6.3% from its high. I’m looking for it to hold 15,020. More on this index in a seperate post. As is often the case, smaller caps tend to cop the initial brunt of a trend reversal. The Russell 2000 has declined 12% in the past 4 weeks.

The largest mover in my macro world was the 25% weekly decline in the Henry Hub (U.S.) Natural Gas prices. They are now down 36% from their recent high.

Amongst other commodities,  Rotterdam Coal is 56% below its recent peak, Aluminium has fallen 20%, Soybeans is 22% below its high as is WTI Crude Oil, which happens to be recording its 6th consecutive ‘down’ week and it back at the same price seen in March 2021.

But I remind readers, that we only hear the ‘noisy’ financial media reporting the hoopla when these prices were rising. Mean reversion is a real thing, especially following parabolic rising moves.

Similar to the case when the Baltic Dry Index fell 57% through October and November. Incidentally, this decline coincided with an equally savage fall in the price of Iron Ore. When you marry these two occurrences, Iron Ore companies suddenly offset the decline in their commodity price with the savings made in shipping it.

In other news, the U.S. 10’s are currently on a 1.34% support line.

In early and mid October 2021, Turkey was in the midst of political weight being thrown against central bank policymaking. That is when I wrote a note suggesting Buying Turkish Banks. Since then Istanbul’s BIST equity index has featured in the list of advancers within this weekly publication. In the past week, the BIST rose 8.5% and this adds up to a 32% for this index within 7 weeks. Simply extraordinary.

This may seen perverse but it highlights a strategy of buying in the wake of what seems to be bad news. Over the past 7 weeks, shares in Akbank have risen 35%, Garanti advanced 33%, isBank climbed 36% and Yapi Kredi soared 48%.

It’s now prudent to sell those bank stocks.

The larger advancers over the past week comprised of the Baltic Dry Index 14.6%, (up 23% in 2 weeks), Cocoa 3%, Gasoil 2.4%, Lumber 18.3%, China Coal 10.5%, Bovespa 2.8%, MOEX 2.6%, TAIEX 1.9% and Istanbul’s BIST equity index rose 8.5%. 

The group of decliners included Bloomberg Commodity Index (4.1%), WTI Crude (2.8%), JKM (2%), Tin (2.1%), Natural Gas (24.6%), Orange Juice (1.8%), Platinum (2.9%), Sugar (3.1%), Uranium (2.9%), Australian Coal (14.3%), Rotterdam Coal (15.6%), Wheat (4.4%), Brent Crude Oil (4.1%), Silver (2.7%), CRB Index (2.7%), KBW Banking Index (3.2%), IBEX (1.9%), S&P 400 Midcap (2.7%), Nasdaq (2%)< Nikkei (2.5%), Copenhagen 25 index (3.7%), Russell 200 (3.9%), Singapore’s Strait Times (2%) and Australia’s ASX 200 only fell 0.5% for the week.



December 5, 2021

by Rob Zdravevski

rob@karriasset.com.au   

Rotterdam Coal prices on their way back to a 200 week mean

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