Rate hikes are built in

The current Fed Target Rate is 1%,

the minutes released overnight hint at 2 rate hikes of 0.5% each in the next consecutive meetings,

the chart below is the U.S. 1 year Treasury Note,

it’s already at 2%,

2 more rate hikes bring the Fed Rate up to 2%,

See how the markets factor in the future………?

My call remains intact, the Fed hikes 3 times and could possibly cut once within 9-18 months.

When you couple hawkish Fed speak with talk amongst the population of recession and slowdowns will, by design, also help simmer inflation.

It’s even more simple…..western central banks can’t hike rates too much because they would derail the great overvalued, leveraged home ownership trade.

While the public financial markets correct and adjust, it’s not as great of consequence compared to central bank policy affecting the retention of your job and being able to service mortgage repayments adequately,

The uncrowded trade is to see inflation peak and abate and same goes for government bond yields.

May 26, 2022

by Rob Zdravevski

rob@karriasset.com.au

2nd chance to buy the uranium theme

While the structural imbalances in the uranium industry remains intact and the investment theme has years to run, spot prices and animal spirits get ahead of themselves sometimes.

So, as markets wash-out late comers and ‘unnatural’ participants, I’ll look for a pullback in the uranium spot price to around the $35-$36 level and I’ll correlate that into my preferred equity exposures as my next moment to accumulate.

May 25, 2022

by Rob Zdravevski

rob@karriasset.com.au

Latest newsletter – “Buy Signals Appearing”

https://mailchi.mp/karriasset/buy-signals-appearing

May 25, 2022

by Rob Zdravevski

rob@karriasset.com.au

Lumber prices barreling lower again

I enjoy watching the price of Lumber. It’s tells a good story.

Currently, it is barrelling towards a $570 support. The trend has been negative as it continues to make ‘lower low’.

Lumber’s price action has also been a good study in mean reversions and fibonacci retracements.

It also tends to lead the S&P 500 in near-term peaks and troughs.

I also think it has been a handy barometer of inflation or at least scarcity of supply.

For those watching inflation, it’ll be interesting to watch how the higher prices of the past several months will affect lumber yards, timber truss manufacturers and homebuilders as they try to pass on higher ‘finished’ prices compared to the more competitive prices buyers of lumber can achieve today?

May 23, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending May 20, 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)

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

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

U.S. 2 & 5 government bond year yields

U.S. Dollar (DXY) Index

Natural Gas

Gasoline

CRB 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)

Tin

NZD/USD

CNH/USD

SGD/USD

Dow Jones Transports

S&P 400 Mid Cap index

Nasdaq Transports

Copenhagen 25 Index



Oversold (RSI < 30)

Russell 2000

NZD/AUD

KRW/USD

JPY/USD

HZD/USD

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

Dow Jones Industrial Average

Nasdaq 100

S&P 500

S&P 600 Small Cap

IDR/USD 

Notes & Ideas:

The big news for the week is a competition between many bond yields are no longer at extreme highs and U.S. equity indices hitting Oversold extremes. 

The bond yields have taken a break being Overbought and starting to consolidate lower. We’ve seen bond buyers being more aggressive which is FINALLY commensurate with pessimism in the equities universe.

In equities, some are seeing Oversold for the first time in 2 years or more.

News about that yield curve has gone quiet too. Since that spread hit my 0.40% initial target it has since flattened to 0.20% this week.

The CRB (commodities) Index remains overbought, for the 18th consecutive week.

Although the U.S. Dollar Index (DXY) is in its 6th consecutive week of ‘overboughtness’, the trend is waning because there are less currencies in recent weeks registering Oversold readings.

We saw the DXY fall 1.4% and the GBP an EUR rise 2% and 1.4% respectively.

The level of U.S. Dollar strength has been quite interesting to watch, especially as many called the death of the USD for various reasons with many relating to their ‘money printing’ thesis.

We saw strength in Asian and Nordic equity bourses, with the former being out favour for weeks prior when they were spending time being Unloved and Oversold.

Generally, there was less volatility across all asset classes and Crude Oil decline of 0.2% helped with that feeling.

But there are always pockets of movement.

Uranium has fallen 30% in 5 weeks,

The Baltic Dry Index (shipping costs) has soared 51% in the past 6 weeks and

Bitcoin fell again and has declined 45% over the past 8 weeks. 

p.s. BTC is getting close to an Oversold extreme.

.

The larger advancers over the past week comprised of; 

Baltic Dry Index 7.7%, Australian Coal 2.4%, Aluminium 5.5%, Rotterdam Coal 5.4%, China Coal 10.8%, Iron Ore 2.6%, Gold 1.9%, Hogs 8.1%, Copper 2.4%, Natural Gas 5.5%, Orange Juice 3.2%, Rubber 2.3%, Sugar 4.1%, Silver 3.2%, Soybean 3.6%, Shanghai 2%, CSI 300 2.2%, HSCEI 4.6%, Hang Seng 4.1%, IBEX 1.8%, Sensex 3%, Oslo 1.9%, Copenhagen 4.4%, TAEIX 2% and Australia’s ASX 200 rose 1%

The group of decliners included;

Gasoil (3.5%), Heating Oil (4.6%), Lumber (13.3%), LNG (3.3%), Tin (7.5%), Gasoline (3.1%), Cotton (2.2%), Dutch TTF Gas (9.3%), Uranium (7%), Bitcoin (6.3%), Ethereum (8%), GBTC (4.9%), Cardano (11.9%), DJ Transports (6.7%), Dow Jones Industrials (2.9%), Midcap 400 (1.9%), SMI (2.9%), SOX (3%), S&P 500 (3.1%) and the Nasdaq Transportation Index slumped (5%)

May 22, 2022

by Rob Zdravevski

rob@karriasset.com.au  

A different look at the Nasdaq

Lately, my posts (see links below) about equity indices hitting weekly Oversold levels has highlighted moments when the Relative Strength Index (RSI) has ventured below the ’30’ mark.

The chart below takes us to a more tactical look using a ‘nearer-term’ daily timeframe rather than my usually ‘mid-term’ weekly outlook.

It illustrates the percentage at which the Nasdaq 100 is trading below its 200 DAY moving average.

I think readers will see the case I am making and where probabilities lie.

May 21, 2022

by Rob Zdravevski

rob@karriasset.com.au

Nasdaq 100 is more Oversold than March 2020

Is Tech dead ?

Hardly !

When measured on a Weekly basis, the Nasdaq 100 Index has made its 6th trip into Oversold territory within the past 32 years.

This week also marked a 7th consecutive weekly decline for the Nasdaq 100, something not seen since October 2008.

As written in last week’s ‘Macro Extremes’ edition, an extended streak only suggests that we are closer to that streak reaching exhaustion. This is not to say that the a new streak commences in the opposite direction.

For through October & November 2012, we saw 6 continuous weeks of decline to then be followed by 2 ‘up’ weeks and then more 2 weeks down.

Incidentally, following the savage decline of March 2020, the Relative Strength Indicator (RSI) was barely Oversold at a reading of 29.99.

Today’s reading is lower than that.

May 21, 2022

by Rob Zdravevski

rob@karriasset.com.au

U.S. Biotechs are in a trough

Another U.S. equity sector which is paying a rare visit to the ‘Oversold’ extremes region are the U.S. Biotechnology stocks.

The Nasdaq Biotechnology Index has simultaneously registered a trifecta of a weekly oversold, a mean reversion to its 200 week moving average and a 2.5 standard deviation move below its rolling week mean.

This current period is only the 5th time this has occurred in the past 25 years.

This index has declined 33% from its September 2021 peak.

May 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

A rare Oversold moment for the S&P 500

During the Thursday May 19, 2022 trading day (which was last night for us in Asia/Pacific/Antipodes), the S&P 500 registered a new (weekly basis) Oversold reading.

This is only the 5th time in 20 years, where it has simultaneously traded to 2.5 standard deviations below its weekly mean and below a Relative Strength Index (RSI) reading of 30.

The S&P 500 (SPX) has now declined 19% from its early January 2022 peak.

This is moment for the S&P 500 has occurred soon after the Russell 2000 did something similar.

However some vigilance is required because the strength and momentum of the S&P 500’s current downtrend is rising and intact and unlike the Russell 2000 (albeit it’s not a rule and nor a prerequisite), the SPX’s 200 week moving average is still 8% below todays price, seen hovering around the 3,500 point level.

Incidentally, for the statistic nerds, the 20% decline seen in late 2018 was one of the more notable corrections which didn’t touch ‘Oversold’.

May 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

Selling U.S. Oil Stocks now

On July 30, 2020, I warned of lower prices amongst the shares of the larger American Oil companies, 

At that time, when Exxon Mobil (XOM) was trading at $45, I made a call that Exxon Mobil would trade down to $33. 

By October 30th, 2020, XOM shares had steadily declined 26% to $32.

This note was written with a sense of juxtaposition that while I was bearish on the share prices of the ‘oil majors’, I was bullish on the actual price of Crude Oil.

A month later (on August 20, 2020), I wrote more about this divergent analysis and I listed 5 stocks which I felt would suffer declines.

Those 5 stocks each declined between 25% and 50% from mid August 2020 until October 30th, 2020.

Meanwhile the price of WTI Crude Oil stayed between $37 and $43 per barrel throughout that time.

Beyond XOM, the other 4 companies on that list included Chevron which eased from $85 to $66, ConocoPhillips declined from $39 to $28, Occidental fell from $17 to $10 and APA (Apache) tanked from $15 to $7.50. 

Now I hear of many broking houses reiterating their ‘overweight’ stance on energy.

Today, I am saying that ‘Going Long’ Oil and related energy stocks doesn’t present the best odds.

It is dangerous adding or entering new ‘long’ positions at current prices.

Since those late October ’20 lows, Crude Oil has rallied significantly and those leveraged free-cash flow oil companies saw their stock prices rise between 3 and 6 fold. Occidental’s shares soared from $10 up its present level of $63, Exxon Mobil has rallied from $33 to $91, Chevron has advanced from $66 to $167, ConocoPhillips rose from $29 to $104 and Apache (APA) climbed from $8 to $40.

Supportingly, WTI Crude rallied from $43 to todays’ price of $108, while Brent Crude moved from $45 to its present price of $111.

And when you consider that WTI Crude  (if we exclude that monumental March 2020 negative -$40.00 price print) has moved up $100 per barrel from that a normalised low of $10 seen soon after that swoon.

I don’t recall any broking houses issuing Buy Advice back then when WTI Crude was trading at $30, $40 or $50, let alone $10.

Today, I hear them calling for $200 Crude Oil.

I’m not trying to call an exact a peak but in terms of probability, it is ‘too late’ to initiate meaningful ‘long’ positions.

Be care chasing Warren Buffet and Berkshire Hathaway’s recent 13F filing announcements about their (increased) Chevron & Occidental holdings. You’ll need to dig deeper when they acquired them and under which terms.

It is the season to Trim, Adjust and Sell.

Exxon Mobil’s shares are now trading at 44% above its their 200 weekly moving average, which is a level not seen for 14 years and is in the percentage range which prompts consolidation or a retracement in the stock price.

The time to be bullish on energy stocks and energy commodities was in Q3 of 2020…..not now !

The ‘fat part’ of the trade has been had.

May 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

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