Macro Extremes (week ending December 17, 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

China’s CSI 300 equity index

Overbought (RSI > 70)

U.S. 2 year bond yields

the JKM “Japan/Korea (LNG) Marker”

Coffee

Urea 

Dutch TTF Natural Gas

and the U.S. Dollar (DXY) Index

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

Dutch TTF Natural Gas

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)

Russia’s MOEX equity index



Oversold (RSI < 30)

EUR/USD

DKK/USD

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

TRY/USD – the Turkish Lira is historically weak



Notes & Ideas:

It was a week of falling bond yields, meaning it was a ‘risk-off’ week and inversely, equities eased.

Other markets mainly digested and consolidated recent moves as they find their way from old extremes into new trends.

I’m also watching if certain securities attempt a double dip, to their recent lows. More on that in upcoming posts on my blog.

Some macro trends are at an acute point. Platinum and Silver are closing in to an Oversold extreme. The Copper/Gold ratio is trying to enter a downtrend while the U.S. government 10 year bond yields remain in a weak downward trend.

The difference between the U.S. 10 year bond yield minus the U.S. 2 year bond yield is also something I’m watching.

And it’s worth noting that the Australian government 2 year bond yield had a bullish outside reversal week. 

In a review of topics from last week’s note, I wrote, 

“Gold (in AUD) needs to holds A$2,467 and USD priced Gold equivalent level is US$1,758”

And so they did, XAUAUD traded to $2,463 and closed at $2,523, while XAUUSD traded to $1,753 and closed at $1,798.

Silver needed to hold $21.80. It traded to $21.41 and closed at $22.54 (up 1.4% on the week) 

Those support levels remain.

And Brent Crude did not trade above $77.00 and thus it didn’t make a ‘higher high’. Brent closed 3.3% lower from the previous week at $72.96.

Henry Hub Natural Gas remains weak, falling a further 6% and is now down 35% over the past 3 weeks. I keep reminding readers that bullish parabolic moves are inevitably followed by quick retracements.  

Japanese (JGB’s)  and American 10 year government bond yields are still testing (and so far, holding) support lines of 1.34% and 0.03% respectively. 

While last week, I heralded that the Hang Seng China Enterprises Index (HSCEI) had a bullish outside reversal week. That was nullified this week, with a 4.2% decline which resulted in a bearish outside reversal week, as that index and the Hang Seng (HSI) search for an extreme low.

And an oversold GBP/USD may find support as the Bank of England became the first G7 nation to raise interest rates in the ‘pandemic era’.

The larger advancers over the past week comprised of; Aluminium +4%, Hogs +10.6%, Hot Rolled Coil Steel +2.6%, JKM +20.6%, Dutch TTF 29.4%, Orange Juice +9.4%, Rotterdam Coal +8.2% and China Coal +7.8%.

The group of decliners included Baltic Dry Index (27.3%, which may be an example of 2nd chance selling and eventually a double dip), Tin (3.9%), Natural Gas (6%), Sugar (3%), Brent Crude (3.1%), Australian Coal (3.3%), Uranium (3.4%), Bitcoin (7%), Ethereum (5%), AEX (2.1%)< KIBW Banking Index (2.9%), S&P Midcap 400 (2.2%), Russell 2000 (1.7%), China’s CSI 300 (2%), Dow Jones Industrials (1.8%), DJ Transports (3.5%), HSCEI (4.2%), Hang Seng (3.4%), Nasdaq 100 (3.3%), SOX (3.9%), Sensex (3%) and S&P 500 (1.9%).



December 18, 2021

by Rob Zdravevski

rob@karriasset.com.au