Macro Extremes (week ending April 28, 2023)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities.

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/USD

DKK/USD

AUD/IDR

Overbought (RSI > 70)

Silver (in AUD)

Gold (in AUD)

Russia’s MOEX Index

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

Sugar

EUR/AUD

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

China 10 year government bond yields 

U.S. 10 year bond yield minus German 10 year bond yield

Iron Ore

Corn

Oats

Soybeans

Oversold (RSI < 30)

U.S. 5 year bond yield minus U.S. 3 month bond yield

Australian Coking Coal

JKM LNG Gas

Lithium Hydroxide 

AUD/GBP

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

None

Notes & Ideas:

Equities generally had quiet week, again, with a slight bias towards weaker prices.

For instance, the S&P 500 rose 0.9%, while Midcaps and Smallcaps fell 0.3% and 1% respectively.

The SOX, FTSE and ASX smallcaps fell between 0.3% and 0.9% for the week, while the ASX 200 rose 0.2%.

Trend less equity markets remains the trend, for now.

Government bond yields fell. While my trend analysis favours lower yields, pattern recognition work tells me it’s prudent to identify the sideways and ‘holding’ pattern seen of late and wait for new ‘higher high’ or ‘lower low’ to be recorded.

The Japanese 10 year bond yield recorded the most notable drop from 0.46% to 0.38%.

The most action was seen in Commodities as it had the active week in some time. 

Coffee, Cocoa, Cattle, Middle East Urea and Hot Rolled Coil Steel are no longer sporting overbought tendencies.

Sugar’s 6 week rally has now amounted to a 27.5% return.

In fact, the streaks amongst commodity prices have returned. Heating Oil has declined for 5 consecutive 5 weeks, Lithium has sunken for 9 weeks, Australian Coking Coal is in a 5 week downward streak (9 of its past 10 have been negative) while the EUR/USD is in its 9th rising week. 

We saw a continuation of last week’s weakness in energy, copper and soybeans with more agricultural (corn and wheat) joining the declines.

Other observations include, Gasoil (diesel) and Heating Oil are 3% from reaching a long awaited men reversion to its 200 week moving average and Copper broke below a support line.

The run in the PGM’s (platinum and palladium) took a breath this past week with the former breaking its 6 week rising streak.

Australian Coking Coal joined the oversold ranks having now seen a 39% decline over the past 5 weeks whilst also mean reverting back to its 200 week moving average.

Corn’s nearest contract fell 12% this past week while the next contract month fell 14%. The pertinent reason for mentioning the subsequent month’s contract this week, is that it registered quinella of oversold readings and it also mean reverted to its 200 week moving average.

And Lumber has closed at its lowest level since mid-May 2020.

Remember all those stories about rising timber prices affecting homebuilding costs?

Euro strength dominated action amongst currencies.

The AUD was weak against most and many currencies which prompts me to say Australian assets are on sale against the GBP and EUR.

While the BRL/USD takes break from trading at an extreme, it continued to strengthen and we also saw the Danish Krone trade into overbought territory against the USD.

The larger advancers over the past week comprised of;

Baltic Dry Index 4.8%, Lean Hogs 3.4%, Natural Gas 7.9%, Sugar 6.1%,  Urea (U.S. Gulf) 3.2%, Urea (Middle East) 9%, Gold in AUD 1.5%, Nasdaq 100 1.9%, Sensex 2.4%, Mexico 1.8%, Chile’s Santiago equity index rose 3.6%.

The group of decliners included;

Australian Coking Coal (13.7%), Rotterdam Coal (2.1%), Brent Crude (1.4%), Copper (2.3%), Heating Oil (4.5%), Hot Rolled Coil Steel (9.3%), JKM LNG Gas (2.8%), Coffee (2.9%), Lumber (11.6%), Cattle (4.9%), Lithium (6.6%), Tin (5.7%), Nikkei (5%), Palladium (6.1%), Platinum (4.3%), Gasoline (2.8%), S&P GSCI (1.6%), Dutch TTF Gas (4.1%), Corn (11.8%), Oats (6.5%), Soybeans (2.1%), Wheat (5.8%), KBW Bank Index (2%), DJ Transports (2.7%), MIB (2.4%), IBEX (1.9%), KOSPI (1.7%), Nasdaq Biotech Index (2%) and Thailand’s SET Index fell 1.9%.

April 30, 2023

by Rob Zdravevski

rob@karriasset.com.au 

Passive indexing will likely disappoint

The ASX 200 equity index is the same price as it was 2 years ago.

How are your passive, indexed ETF returns working out?

What if various equity indices are flat for many years to come?

This is also applicable to those index-hugging fund managers too.

(after all, if you stay close to the index, you get to keep your job)

Timing the market (and using probability) is what professional investors apply their skills towards, every day of every year.

At this particular time, I hope investors are not ingesting that old financial services line, “it’s time in the market and not timing the market’.

That line is often accepted by many as an excuse for their lack of attention towards prices and valuations in the capital markets.

Conversely, when it comes to buying or selling residential real estate or the purchase of a car or an airplane ticket, we become suddenly ‘market timers’ and we’ll tell anyone who is listening how good we are.

April 23, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending April 21, 2023)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities.

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)

Coffee 

Copenhagen

BRL/USD

U.K. 3 years government bond yields

Overbought (RSI > 70)

Cocoa

Hot Rolled Coil Steel (HRC)

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

Cattle

Sugar

Russia’s MOEX Index

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

None

Oversold (RSI < 30)

U.S. 5 year bond yield minus U.S. 3 month bond yield

Urea (Middle East)

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

Lithium Hydroxide 

Notes & Ideas:

Equities generally had quiet week. In Europe they traded slightly higher through the past week, while U.S. and Australian equities ranged from being slightly lower to unchanged. Asian and South American bourses bore the larger losses for the week, with Chile dropping the most as the government plans to nationalise the lithium industry.

Continuing previous weekly commentary, equities are consolidating and broadly remain treadless, although Spain’s IBEX and Switzerland’s SMI did make ‘recent’ higher highs.

Government bond yields moved in the direction that I wrote about last week. They rose modestly across the world except for the Canadians.

With the recent hoo-ha in the bond market, it’s timely to paraphrase a Kipling adage, ‘keeping one’s head while others are losing theirs’. 

Several weeks ago, the U.S. 2 bond was yielding 5.08%. It then tanked to 3.56% and is now trading at 4.20%, which is close to being at the mid-point of those highs and lows.

Overall Commodities traded quietly with a bias for lower prices with energy and copper and soybeans leading the way while metals (industrial and PGM’s) saw strength. 

The PGM’s (platinum and palladium) have had a stellar run while Australian Coking Coal prices have declined 25% over the past 4 weeks.

Last week’s overbought orange juice along with gold and silver (as priced in AUD) are no longer so.

The currencies which were at extremes last week, are not anymore.

The U.S. Dollar was slightly firmer (amongst media noise discussing its demise), enough so to lift it out of oversold territory.

The AUD was weaker against the EUR and GBP, while the BRL continues to weaken against the USD.

The larger advancers over the past week comprised of;

Rotterdam Coal 2.5%, Baltic Dry Index 4.8%, Cocoa 3%, China Coal 13.2%, Lumber 2%, Tin 13.6%, Natural Gas 5.6%, Nickel 6.7%, Palladium 7.4%, Platinum 8%, Sugar 3%, MOEX 3.2% and the Nasdaq Transports rose 2.1%.

The group of decliners included;

Australian Coking Coal (3.7%), Bloomberg Commodity Index (2.1%), WTI Crude (5.6%), Gasoil (6.2%), Lean Hogs (4.3%), Copper (3.1%), Heating Oil (5.7%), JKM LNG (6.3%), Lithium (2.1%), Gasoline (8.3%), S&P GSCI (3.5%), CRB Index (2%), Cotton (3.3%), Dutch TTF Gas (2.4%), Brent Crude (5.8%), Soybeans (3.4%), Rice (1.5%), CSI 300 (1.4%), HSCEI (2.2%), Hang Seng (1.8%), BOVESPA (1.8%), Helsinki (2.1%), TAIEX (2.1%), SET (2.2%) and Chile fell 3.5%.

For reference, Australia’s Small Cap fell 1.1%, the ASX 200 eased 0.4% lower, Toronto’s TSX rose 0.6%, the Dow Jones Industrials and S&P 500 were almost unchanged with slight declines of 0.2% and 0.1% respectively, the Nasdaq Composite and 100 correspondingly lost 0.4% and 0.6%, the Philadelphia SOX Index slumped 1.6% whilst the Dow Jones Transport Index climbed 1.2% for the week.

April 23, 2023

by Rob Zdravevski

rob@karriasset.com.au 

The VIX does matter

Queuing off the VIX Index remains relevant.

Over the past 30 years, here are 12 moments when the VIX was overbought on a weekly basis and how it corresponded to an adequate signal to accumulate the ‘market’, or the S&P 500 (orange line) in particular.

I don’t use this study in isolation but it’s a handy cross-referencing tool.

April 16, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending April 14, 2023)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities.

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)

Coffee 

Copenhagen

BRL/USD

EUR/USD

FXE

GBP/USD

DKK/USD

Overbought (RSI > 70)

Hot Rolled Coil Steel (HRC)

Orange Juice

Gold (in AUD)

Silver (in AUD)

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

Cattle

Sugar

Russia’s MOEX Index

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

U.S. Dollar Index (DXY)

Oversold (RSI < 30)

Urea (Middle East)

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

U.S. 5 year bond yield minus U.S. 3 month bond yield

Lithium Hydroxide 

Notes & Ideas:

Equities generally firmed around the world, with many seeing 4 consecutive weeks of positive returns, while not all are exhibiting strong trends.

The Nasdaq 100 is the exception while the 8% advance in the Nasdaq Biotech market isn’t.

The Copenhagen equity market made a return to the Overbought ‘extremes’ and it was accompanied by a sympathetic overly-bought DKK (versus the USD).

And I’ll be watching if Switzerland’s SMI and the SPX 500 can make ‘higher highs’.

Amongst bonds, government bond yields rose and this has type of consolidation has been entirely expected following such newsworthy declines. I’ll watch closely if yields rise a little more so to temporarily hurt those late comers who have bet the opposite way.

Commodities generally continued their strength.

Over the past 4 weeks, Sugar has risen 15%, while WTI Crude has extended its run to 22% and Brent Crude has advanced 18% whileSilver priced in AUD has soared 20% in the past 5 weeks.

Some currencies are beginning to touch some extremes again.

With weakness seen in the U.S. Dollar, as evidenced in the DXY Index trading at extreme in this week’s list, the Euro, British Pound and the Danish Krone are showing ‘extreme’ strength against the U.S. Dollar.

i.e. I am seller of some Euro and Pound Sterling and buying USD.

The larger advancers over the past week comprised of;

Aluminium 2.3%, WTI Crude 2.3%, Lean Hogs 8.5%, Copper 2.3%, Lumber 8.9%, Cattle 2.2%, Natural Gas 5.1%, Sugar 2.1%, Palladium 3.7%, Urea U.S. Gulf 8.3%, Brent Crude 2%, Urea Middle East 2.5%, Corn 3.5%, Rice 4.5%, KBW Baking Index 3.2%, CAC 2.7%, DJ Transports 2%, MIB 2.4%, Bovespa 5.4%, KOSPI 3.3%, S&P MidCap 400 1.7%, Nikkei 3.5%, Oslo 2.5%, Copenhagen 3.8%, Stockholm 3%, Russell 2000 1.5%, S&P SmallCap 600 1.2%, TSX 1.9%, FTSE 1.7%, MOEX 3.4%, Chile 2.7%, Mexico 1.8%, Australia’s Small Cap rose 2.8% and the ASX 200 climbed 2%

The group of decliners included;

Australian Coking Coal (2.3%), Baltic Dry Index (8%),Tin (8%) and Dutch TTF Gas fell 4.6% as it works its way towards on Oversold reading.

April 15, 2023

by Rob Zdravevski

rob@karriasset.com.au