Macro Extremes (week ending May 13, 2022)

The following assets (on a weekly timeframe) registered an Overbought or Oversold reading and/or have traded more than 2.5 standard deviations above or below its rolling mean.

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

EUR/GBP

Overbought (RSI > 70)

Australian 2, 3, 5 & 10 year government bond yields

Canadian, Spanish, French, Greek, Italian, Swedish, Portuguese and New Zealand 10 year government bond yields

U.S. 2, 5 & 10 year yields

TBX & TBT

U.S. Dollar (DXY) Index

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

None

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

Gold/Copper Ratio

Copper 

Tin

Coffee

Silver

CAD/USD

DKK/USD

SGD/USD

IDR/USD

NZD/USD

AUD/USD

Dow Jones Industrial Average

S&P 400 Mid Cap index

The Nasdaq 100

Sensex

Copenhagen

TAIEX 

and Canada’s TSX.



Oversold (RSI < 30)

TLT & IEF

Russia’s MOEX Index

South Korea’s KOSPI

JPY/USD

EUR/USD

HKD/USD

GBP/USD

FXE

And Bitcoin, Ethereum and Cardano

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

NZD/AUD

KRW/USD

SEK/USD

CNH/USD

Russell 2000 index



Notes & Ideas:

The big news is the return of equity indices peppering 2.5 standard deviations below their weekly mean, along with some commodities such as Silver.

The S&P 500, Nasdaq 100 and the Russell 2000 was amongst those indices hitting lowly extremes, of which I wrote this note earlier last week about the latter.

Incidentally, they have risen 4% – 5% from their intra-day lows seen only days ago.

While Chinese indices rose, for they spent the past weeks in Oversold territory.

Persistent USD strength means many currency crosses are hitting their lower end ‘extremes’ such as the NZD, while the Aussie did so with an intra-week low of 0.6829.

While the downward trend is intact, it is not conclusive that it strengthens from current prices. So, with the consideration of probability there is merit in selling some USD and Buying AUD below 0.6950.

While bond yields continue to play out their peaking process as are selected commodities, many (but not all) of the assets which recently registered an Overbought status, this week made ‘lower lows’ however presumption can be dangerous, as I don’t have enough signals to suggest their recent trends have waned or ended.

In fact, the yield in the following government bonds produced an outside bearish reversal week; Swiss, German, French, U.K., Italian, Kiwi, Swedish and the U.S. trifecta of 2;s, 5’s and 10’s….

And the German, Korean, U.S. 10 year yields and the U.K. Gilts are not Overbought this week.

Corresponding with extended weeks of ‘extremes’ in bond yields (as reported in this weekly publication), I think yields retrace in sympathy with inflation abating.

hint: this is bullish for a bounce in technology stocks.

Other notes include;

Gold broke below a weekly support

Hot Rolled Coil Steel has traded down to and is resting on a support line.

Tin has fallen 27% since its early March high.

The Dow Jones and S&P 500 has seen 6 consecutive weekly declines. Weekly streaks of 6, 7 and 8 are not seen too often. This means be wary of jumping onto the current streak, where probability suggests it close that this streak is coming to an end.

Equally, a streak that is broken doesn’t mean a reversal of a similar length is what follows next.

I’m reminding people that the Australian yield curve hasn’t inverted unlike the U.S., albeit the latter was only so for about 6 days.

And in a coming post, I’ll write about the US 10 year / Australian 10 year spread

The larger advancers over the past week comprised of; 

Baltic Dry Index 14.2% (up 39% in 4 weeks), Gasoline 5.3%, Oats 2.2%, Wheat 6.2%, Shanghai Composite 2.8%, AEX 1.8%, CSI 300 2%, DAX 2.6%, MIB 2.4% & Stockholm 2.5%.

The group of decliners included;

Australian Coal (1.8%), Aluminium (2%), Gasoil (2.8%), Copper (2.2%), HRC (3.6%), JKM (10.2%), Lumber (6.9%), Natural Gas (4.7%), Tin (12.8%), Nickel (6.9%), Orange Juice (5.2%), Palladium (5.2%), Platinum (2.7%), Silver (6.1%), Urea (2.1%), Uranium (9%), Gold in AUD (1.9%), KBW Banking Index (4.6%), Gold (3.8%), Dow Jones Industrials (2.1%), DJ Transports (3%), MOEX (3.6%), Midcap 400 (1.9%), Nasdaq (2.4%), Nikkei (2.1%), Sensex (3.7%), Copenhagen (4.7%), S&P 500 (2.4%),  STI (3.1%), TAIEX (3.5%), TSX (2.6%) and Australia’s ASX 200 fell 1.8%.

May 15, 2022

by Rob Zdravevski

rob@karriasset.com.au  

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