Decline in Natural Gas complete

That’s your lot.

A round trip move for Natural Gas, rom $2.50 to $10 and back to $2.50 all within 22 months.

Regarding my short call from $10.00 to my target of $2.50 was reached today.

That’s your lot.

The fat part of the trade has been had.

The mean reversion from those heights back to and below its 200 week moving average also corrected that parabola seen a year earlier.

It’s now Oversold on a weekly basis.

February 2, 2023

by Rob Zdravevski

rob@karriasset.com.au

Wait for cheaper Corn (and Oil)

The price of Corn looks like going lower again.

My work suggests ‘new longs’ should be careful and wait for a decisive break higher and if so, it’ll be a momentum trade.

For producers needing cashflow, it’s prudent to lock in the current price $6.80 being offered.

For buyers, you should get some cheaper prices soon.

$5.80 comes to mind.

And something to ponder is how the price of Corn goes, so does Oil’s.

February 1, 2023

by Rob Zdravevski

rob@karriasset.com.au

Watching Higher Highs – Nasdaq and Occidental

To compliment recent posts about the S&P 400 MidCap Index and Rio Tinto, here are the price charts of the Nasdaq 100 and Occidental Petroleum.

Just something to watch if the market gives us conviction or the possibility of an extension, following some consolidation over the past few months.

January 31, 2023

by Rob Zdravevski

rob@karriasset.com.au

Higher Highs – Rio Tinto

I did the notations on this chart of Rio Tinto (RIO.AX) a few days ago.

That higher high of $128.55 is still something to watch for.

This is theorem and observation is valid for many asset prices amongst the current rally.

I’m watching for exhaustion, volume and whether ‘higher highs’ are made in order to assess any extension of this advance…..

but this stock (and others) are touching Overbought levels and there are ‘gaps’ lurking below.

January 31, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending January 27, 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)

None

Overbought (RSI > 70)

German 2 year government bond yields

Gold (in Canadian Dollars)

Gold (in U.S. Dollars)

Cattle

SGD/USD

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)

None

Oversold (RSI < 30)

U.S. 5 year yield minus U.S. 3 month bill yield spread

Natural Gas

Urea (U.S. Gulf) 

Urea (Middle East)

USD/SGD

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

None

Notes & Ideas:

Turkey’s BIST Index is no longer Overbought. This is worth a mention because this stock index tripled in value over the past 12 months.

Global Equities resumed their rally.

As a recent blog post of mine said, “market wants to rally….and so the herd starts agreeing the same….and more and more will believe that it wants to rally…..and so it rallies until the last momentum holdout joins in……the antithesis is to sell on ‘up days’ before they become ‘down days’”

Last week, I highlighted the bullish cries amongst market pundits aimed at Chinese equities. They continued to rally this week, although caveat emptor is advised when observing the near-term pendulum. 

Commodities generally had a benign week with many prices posting ‘inside weeks’.

Other notable price action was seen in those commodities who have or are close to reverting back to their 200 week moving average or being Oversold….such as Rotterdam Coal, Urea, Dutch TTF Gas ($2 from its 200 WMA), Lean Hogs, Natural Gas (in its 6th consecutive down week) and the Baltic Dry Index, which I’m looking for a swoon towards $520.

The Baltic Dry Index continues its slump. It has now slumped 73% in the past 4 weeks.

And Palladium closed at its lowest level since March 23, 2021.

In currencies, the general news is that the USD continues to weaken (back towards its long-term mean) and all of those currencies (JPY, KRW, CLP, DKK) which were Oversold several weeks ago against the USD are now much stronger.

The AUD/CAD is nearing an Overbought reading, in fact the AUD was up 2% against everything for the week.

EUR/USD is nearing Overbought levels and has now risen 13% from its pessimistic early October 2022 lows.

Bonds had a quiet week considering the past 6 or so weeks. 

Yields generally reversed their declining streaks, which we were in line with last weeks comments.

The larger advancers over the past week comprised of;

Cocoa 2.3%, China Coal 2.5%, Hot Rolled Coiled Steel 8.4%, Coffee 9.8%, Lumber 14.3%, Sugar 6.3%, Uranium 3.5%, Oats 4.7%, Shanghai 2.2%, CSI 300 2.6%, KBW Banking Index 4.7%, Nasdaq 4.7%, DJ Industrials 1.8%, MIB 2.6%, HSCEI 3.9%, HSI 2.9%, Nasdaq Composite 4.3%, KOSPI 3.7%, S&P MidCap 400 2.5%, Nasdaq 100 4.7%, Nikkei 225 3.1%, S&P Small Cap 600 2.1%, Russell 2000 2.4%, SOX 5.4%, S&P 500 2.5%, STI 3.1%, Toronto’s TSX 1% and Australia’s ASX 200 rose 0.6% while the ASX Small Cap Index improved 0.9%.

The group of decliners included;

Rotterdam Coal (19.2%), Baltic Dry Index (11.4%), WTI Crude Oil (2.4%), Gasohol (4.6%), Lean Hogs (2.5%), Heating Oil (5.8%), JKM LNG (14.5%), Natural Gas (10.2%), Palladium (7.2%), Platinum (3%), Gasoline (2%), Dutch TTF Gas (17.1%), Urea U.S. Gulf (12.2%), Brent Crude (1.8%), Urea Middle East (12.1%), Silver AUD (3.3%), Gold AUD (1.9%) and Copenhagen’s equity index fell 1.8% 

January 29, 2023

by Rob Zdravevski

rob@karriasset.com.au 

Danger lurks below

Tech stocks are finding a floor and catching a bid as bond yields fall….

or if you look at it inversely; when bond prices rise.

The chart below shows ServiceNow vs the 3-7 Bond ETF (IEI).

Whatever direction the bond price goes, so does this stock.

Try it on some others.

But it’s the same story as before.

Lower yields (see discount rate) is good for lowly or unprofitable companies who are more so relying on higher revenue guidance to buoy their equity prices.

For the time being, I’m identifying these rallies as momentum and potentially being fortuitous rather than under the guise value and trading genius.

Whilst I think bond yields have more downside over the coming year, I see increasing probability that they take a break from their current downward trend and move a little higher to shakeout the late comer buyers.

My work suggest that the risk/reward of being long ‘tech’ with new money at todays prices is marginal which I think resembles a bull trap.

There are also many ‘gaps’ below in many equity prices.

I’d rather search for ‘maximum pessimism’ or ‘capitulation’ before exhibiting the sort of confidence (or short term memory loss) that I’m seeing today.

In such a bond yield bounce that I anticipate and subsequent decline in tech stocks, I also sound a warning to those holding or ‘playing’ the long side of 2x and 3x technology related index and sector ETF’s.

More on that later.

January 27, 2023

by Rob Zdravevski

rob@karriasset.com.au

Middle Eastern Urea prices join the Oversold parade

Overnight’s stunning 12% decline in the Middle East FOB Urea price has seen it revert back to its 200 week moving average, as the chart below illustrates.

It also registered a Weekly Oversold reading which was last seen 3 years ago.

The other 2 charts included show how the prices of Wheat and the Japan Korea LNG Marker dance along with the Middle Eastern Urea price.

January 27, 2023

by Rob Zdravevski

rob@karriasset.com.au

Urea – Accumulate Signal

U.S. Gulf Urea prices are exhibiting Oversold ‘extremes’.
Backwardation (in forward months contracts) makes for a bullish case too.

The Middle East Urea prices are nearly Oversold too.
Natural Gas (Henry Hub) are approaching Oversold as is the price of Wheat (see correlation)

January 26, 2023
by Rob Zdravevski
rob@karriasset.com.au

Nat Gas decline nearly done

Only about 30 cents to go and Natural Gas reaches my $2.50 target.

But 30 cents doesn’t matter considering my original Short call on Natural Gas from its lofty $10 mark seen several months ago.

You can read the time series of this view in all of the links below, including some that discuss correlations to Australian inflation.

The focus now is to consider a Long position in Natural Gas…..or a 2nd or 3rd derivative of that idea.

January 26, 2023
by Rob Zdravevski
rob@karriasset.com.au

Macro Extremes (week ending January 20, 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)

Copper

Copper/Gold Ratio

Overbought (RSI > 70)

German 2 year government bond yields

Gold (in Canadian Dollars)

Gold (in U.S. Dollars)

Cattle

Istanbul’s BIST Index

SGD/USD

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)

None

Oversold (RSI < 30)

U.S. 5 year yield minus U.S. 3 month bill yield spread

Urea (U.S. Gulf) 

Urea (Middle East 

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

None

Notes & Ideas:

Global Equities mostly had a benign week with Chinese stocks continuing to steadily add to their gains.

Now, we are hearing bullish cries from many firms but in the near-term, it’s too late. Chinese equity indices have risen 18.5% over the past two and half months and nearing towards an ‘extreme’. Such a return is also a reminder to calibrate ones expectations. 

In commodities….over the past 2 weeks, energy prices (except for Natural Gas) have rebounded. This is understandable considering their recent declines.

Gasoil, Brent Crude and WTI Crude have risen 11%, Heating Oil is up 15% and Gasoline has bounced 17%. 

6 week ago, Gasoline completed its mean reversion (down to its 200 week moving average), more than halving from its peak of $4.30 to a low of $2.02.

Dutch TTF Gas and Urea have nearly mean reverted. Cotton, Coffee and Natural Gas already have done so. 

The latter has slumped a stunning 72% from its high and has just completed its 6th consecutive ‘down’ week’.  Bounces are expected when weekly streaks reach 6, 7 or 8. It’s rarefied air.

And Palladium closed at its lowest level since December 20, 2021.

Bonds were the biggest newsmaker for the week as they continued their rally. Buyers remained the more aggressive and yields generally fell across the world. 

Whilst they have made a reasonable swoon towards their long term means and arguments for such gravitational pull has validity, in the interim bond yields are nearing some Oversold ‘extremes’.

Incidentally, the U.S. 5 year inflation breakeven rate has nearly mean reverted, which I find understandable considering the same has bee occurring in many commodity prices.

There was much palaver made about the Bank of Japan losing their marbles and control of the Japanese 10 year Government Bond (JGB) yield…….but the ‘widow-maker’ soon returned posting a bearish outside reversal week and yield fell from 0.53% to 0.37%.

Other price action news saw outside bearish reversal weeks in USD priced Silver, AUD/GBP and AUD/EUR, while the AUD/JPY and the Nikkei 225 made the opposite.

The KBW Banking Index can be thankful for Friday’s 3.1% surge to allow it to finish the week only down 0.5%.

The AUD/CAD is nearing an Overbought extreme.

The Baltic Dry Index has now tanked 62% in the past 3 weeks.

The Indian Rupee (vs., USD) isn’t Oversold anymore and building a base near its multi-year lows.

And while I watch for more mean reversions to complete, it’s folly to ‘paint shapes’ resembling a “V” or a “W” assuming prices sharply recover up to where they recently came from.

The larger advancers over the past week comprised of;

Australian Coking Coal 3.3%, Rotterdam Coal 3.2%, WTI Crude 2.2%, Gasoil 5.4%, Heating Oil 6.5%, JKM LNG 13.1%, Coffee 2%, Tin 6.3%, Gasoline 4.5%, Cotton 5.4%, Dutch TTF Gas 3.2%, Brent Crude 2.6%, Oats 1.9%, S&P GSCI 1.7%, Shanghai 2.2%, CSI 300 2.6%,  Turkey’s Istanbul BIST Index 10.7% and Australia’s ASX 200 rose 1.7% while the ASX Small Cap Index improved 0.6%.

The group of decliners included;

Baltic Dry Index (19.3%), Cocoa (3.1%), Natural Gas (7.2%), Palladium (3.6%), Platinum (2.3%), Urea Middle East (5.2%), Uranium (2.5%), DJ Industrials (2.7%), S&P 500 (0.7%) while the FSTE 100, Russell 2000 and the S&P MidCap 400 all fell 1%.

January 22, 2023

by Rob Zdravevski

rob@karriasset.com.au 

%d bloggers like this: