Macro Extremes (week ending August 5, 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)

None

Overbought (RSI > 70)

Dutch TTF Gas

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)

Japanese 10 year government bond yields

Oversold (RSI < 30)

U.S. 10 year minus U.S. 5 year government bond yield

Hot Rolled Coiled Steel

Tin

Oats

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

The U.S. 10 year minus 2 year government bond yield spread.

Notes & Ideas:

This big news over the past week was continued weakness in energy prices and shipping rates. We also experienced the mildest and quietest week in global equities for more than 2 months. It certainly felt that way too.

It was a week to not chase the momentum higher, not initiate any meaningful positions and to trim and sell those assets that have given you a fortuitous return or allowed you to a second chance to recoup some capital.

There was plenty of warning about the pending decline in energy prices.

I was cognisant of Oil’s ‘high’ price as expressed in these posts.

And earlier this week I mused what if Oil fell to $66

I have also hinted at lower diesel prices in this post.

Now that Gasoil and Crude prices have fallen 30% from their recent highs, Crude Oil specifically near an interim low and due for a ‘bounce’.

I’ll look for WTI Crude and Brent to trade down to $85.50 and $92.00 respectively.

Incidentally, Gasoil (diesel) has fallen from $1400 to $990 (a metric ton) over the past 7 weeks. Over the same time WTI Crude has declined from $123 to $89. It’s interest to ‘hear’ the silence in the financial media, as opposed to the noise heard when prices were barreling skywards only a few months earlier. 

There is merit to identifying the ‘mean’ are and cancelling out the noise.

The U.S. yield curve remains inverted for the 5th week in a row and Oversold for 3 consecutive weeks.

Keep in mind that when the yield inverted 6 weeks ago, I had earlier written a note citing that such an occurrence is beneficial for the longer term accumulation of the S&P 500.

And this article was written on the day the S&P 500 ‘bottomed’ hinted the same attractive prospects for the S&P 500

Since then, the S&P 500 has rallied 14%.

Over a similar timeframe, the KOSPI and ASX200 have risen 9.4%, the Russell 2000 has advanced 17% while the Nasdaq Biotechnology Index has soared 25.4%.

Today, I think the S&P 500 is closer to a ‘trading sell’ and while the longer term accumulation position remains my stance, tactically I think we’ll see lower prices again, a double dip testing recent lows and a safer opportunity to buy or add to positions.

The next 12 months should prove a notable moment to build an equities portfolio of world class businesses at much more reasonable and palatable valuations.

The larger advancers over the past week comprised of; 

Australian Coking Coal 8.1%, Iron Ore 2.4%, JKM LNG 5.8%, Orange Juice 6.3%, Platinum 3.9%, Sugar 2.3%, Dutch TTF Gas 2.8%, Uranium 1.9%, Rice 2.7%, BOVESPA 3.2%, KOSPI 1.6%, Nasdaq 100 2%, Russell 2000 1.9%, SOX 2.9%, STI 2.2%, Istanbul 6.3%, Nasdaq Composite 3.3% and the Nasdaq Biotechnology Index soared 6.8%.

The group of decliners included;

Aluminium (2.7%), Rotterdam Coal (2.3%), Bloomberg Commodity Index (3.3%), Baltic Dry Index (17.7%), China Coal (5.7%), WTI Crude Oil (9.7%), Gasoil (10.5%), Heating Oil (11.3%), Hot Rolled Coil Steel (4.3%), Coffee (3.6%), Lumber (9.1%), LNG (6.6%), Natural Gas (2%), Gasoline (8.3%), Silver USD (2.2%), CRB Index (3.8%), Brent Crude (9%), Urea M/E (3.7%), Oats (8.4%), Soybeans (4.1%), Wheat (4%), MOEX (7.2%) and Copenhagen’s OMX 25 Index fell 2.2%. 

August 7, 2022

by Rob Zdravevski

rob@karriasset.com.au  

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