My final newsletter for 2021

My final newsletter for 2021 is here……

https://mailchi.mp/karriasset/a-distorted-sp-500-amongst-extreme-peaks

Lower Shipping Costs

Below is a chart of the Baltic Dry Index, which has risen 12 fold in 18 months.

Such a parabolic rise is often met with a severe retracement.

Recently, it couldn’t trade above a recent mark (as noted in the ellipse) to make a ‘higher high’ but last week, it broke beneath a trend line and made a ‘lower low’.

Other indicators are also bearish.

I’ll look for it to mean revert to its 200 week moving average (blue line) but I think $900 is plausible. Look out below.

Then the next chart I have overlaid the nice correlated Iron Ore price.

The case for a lower Baltic Dry Index increases the probability of lower Iron Ore prices.

We are seeing may assets and securities in a battle to make a ‘higher high’ and if they can’t, we’ll see them making a double dip to recent lows.

Where parabolas have existed, expected lows to be tested but also broken. Reversion to the mean will be a more notable thing to look for.

With that, I think about mining companies exposed to this theme. 

I believe that lower shipping prices will more than offset a new 20% decline in Iron Ore prices.

December 27, 2021

By Rob Zdravevski

rob@karriasset.com.au.

#mining #shipping #RIO #FMG #BHP #ironore

Macro Extremes (week ending December 24, 2021)

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

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

None

Overbought (RSI > 70)

U.S. 2 year bond yields

Turkish 10 year bond yields

the JKM “Japan/Korea (LNG) Marker”

Urea 

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

Dutch TTF Natural Gas (it fell 23% of Friday alone)

Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

Russia’s MOEX equity index

Spain’s IBEX equity index

HSCEI Index

Hang Seng Index

Sugar



Oversold (RSI < 30)

None

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

None



Notes & Ideas:

It was a mild week considering the movements over the past 12 weeks.

There isn’t much to report. 

The past few editions of ‘Macro Extremes’ contains some basics of the framework which I am watching and they are still intact, from Gold, Silver, Currencies and Bonds.

The U.S. 10 year bond yield is still in a downtrend while it holds the 1.34% support line.

From previous week’s commentary, I’ll reiterate watching the difference between the U.S. 10 year bond yield minus the U.S. 2 year bond yield.

The biggest weekly mover in global markets was the Turkish Lira rising 52% following continual weeks of making new historic lows.

Look out for a note on the Baltic Dry Index, which fell a further 7% this week, adding to last week’s 27% decline and it’s part of a story which I am telling is an example of 2nd chance selling pressure which will eventuate in a double dip in many assets.

Another notable mover was (NYMEX traded) U.S. LNG prices, which rose 19% as a flotilla of cargoes are heading to Europe chasing higher spot prices on the continent. 

I’ll continue to highlight the peril of chasing parabolic moves such as the one seen in Dutch TTF Gas price, which after more than doubling in 6 weeks, fell 23% on Friday alone.

While Crude Oil, Gasoil (diesel), U.S. Transports and the S&P 500 all made outside bullish reversal weeks.

The larger advancers over the past week comprised of; 

Oslo +2.3%, Stockholm +3.5%, Philadelphia SOX +4.6%, S&P 500 +2.3%, Transports +3.5%, AUDJPY +2%, AEX +2.4%, CAC +2.3%, DJ Transports +2.3%, IBEX +3%, S&P Midcap 400 +2.6%, Nasdaq 100 +3.2%, Russell 2000 +3.1%, Aluminium +5.8%, Bloomberg Commodity Index +2.6%, WTI Crude +4.3%, Iron Ore +2.2%, Gasoil +1.8%, Lean Hogs +3%, Copper +2.3%, Heating Oil +5%, Cattle 1.8%, LNG +19.5%, Platinum +4.3%, Gasoline +4%, Silver +1.8%, CRB Index +2.6%, Brent Crude +4%, Corn +2.1%, Rice +1.8%, Soybeans +4.1% and Wheat +5.1%.

The group of decliners included ;

Baltic Dry Index (6.8%), Hot Rolled Coil Steel HRC (2%0, JKM (8.5%), Lumber (2.5%), Dutch TTF Gas (3.2%), Rotterdam Coal (2.7%), Bovespa (2.2%) and Istanbul’s BIST (9.5%)



December 27, 2021

by Rob Zdravevski

rob@karriasset.com.au   

AdBlue’s affect on Diesel prices

AdBlue shortages is a popular topic.

The shortage of this fluid which is squirted onto the exhaust gases produced by diesel engines (in order to reduce emissions) is expected to affect the trucking (logistics, supply chain etc) industry.

Understandably, the price of Urea continues to scream stratospherically and parabolically higher.

But the price of GasOil (diesel) has declined. This is also understandable as we’d expect fuel to be conserved and truckers buying less diesel as an in kind reaction to AdBlue shortages.

With that said, the main highlight of this post is to show you the volatility of the GasOil price lately.

In the chart below, the first ellipse shows GasOil falling 12% on November 26th and then for the next 4 trading days it has a minimum of a 5% trading range in each day.

Volatility continues for the next 2 weeks.

Then (the second ellipse) this Monday it closes down 5.5% from the previous day.

On the next day (Tuesday), it closes up 5.5%.

This tells you to stay away.

It tells you that some markets are becoming a video game.

It’s a reminder to watch but not play.

December 23, 2021

by Rob Zdravevski

rob@karriasset.com.au

#adblue #diesel

Watching for Lower Lows

Within the ‘mean reversion trade’, which I think will play out in 2022……

the current game is to firstly watch if markets double dip and test the lows seen in the past fortnight.

And then incorporate that into whether prices make higher highs or lower lows.

The patterns and waves seen in the AUDUSD (weekly) chart below, is being mimicked across a host of assets.

In this example, the bounce from 0.7000 needs to travel above 0.7555 to make a ‘higher high’….while a new ‘lower low’ is close by.

Additionally, the AUDUSD has also been a good proxy for ‘risk-on’ and ‘risk-off’ sentiment.

December 20, 2021

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending December 17, 2021)

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

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

Lumber

China’s CSI 300 equity index

Overbought (RSI > 70)

U.S. 2 year bond yields

the JKM “Japan/Korea (LNG) Marker”

Coffee

Urea 

Dutch TTF Natural Gas

and the U.S. Dollar (DXY) Index

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

Dutch TTF Natural Gas

Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

Russia’s MOEX equity index



Oversold (RSI < 30)

EUR/USD

DKK/USD

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

TRY/USD – the Turkish Lira is historically weak



Notes & Ideas:

It was a week of falling bond yields, meaning it was a ‘risk-off’ week and inversely, equities eased.

Other markets mainly digested and consolidated recent moves as they find their way from old extremes into new trends.

I’m also watching if certain securities attempt a double dip, to their recent lows. More on that in upcoming posts on my blog.

Some macro trends are at an acute point. Platinum and Silver are closing in to an Oversold extreme. The Copper/Gold ratio is trying to enter a downtrend while the U.S. government 10 year bond yields remain in a weak downward trend.

The difference between the U.S. 10 year bond yield minus the U.S. 2 year bond yield is also something I’m watching.

And it’s worth noting that the Australian government 2 year bond yield had a bullish outside reversal week. 

In a review of topics from last week’s note, I wrote, 

“Gold (in AUD) needs to holds A$2,467 and USD priced Gold equivalent level is US$1,758”

And so they did, XAUAUD traded to $2,463 and closed at $2,523, while XAUUSD traded to $1,753 and closed at $1,798.

Silver needed to hold $21.80. It traded to $21.41 and closed at $22.54 (up 1.4% on the week) 

Those support levels remain.

And Brent Crude did not trade above $77.00 and thus it didn’t make a ‘higher high’. Brent closed 3.3% lower from the previous week at $72.96.

Henry Hub Natural Gas remains weak, falling a further 6% and is now down 35% over the past 3 weeks. I keep reminding readers that bullish parabolic moves are inevitably followed by quick retracements.  

Japanese (JGB’s)  and American 10 year government bond yields are still testing (and so far, holding) support lines of 1.34% and 0.03% respectively. 

While last week, I heralded that the Hang Seng China Enterprises Index (HSCEI) had a bullish outside reversal week. That was nullified this week, with a 4.2% decline which resulted in a bearish outside reversal week, as that index and the Hang Seng (HSI) search for an extreme low.

And an oversold GBP/USD may find support as the Bank of England became the first G7 nation to raise interest rates in the ‘pandemic era’.

The larger advancers over the past week comprised of; Aluminium +4%, Hogs +10.6%, Hot Rolled Coil Steel +2.6%, JKM +20.6%, Dutch TTF 29.4%, Orange Juice +9.4%, Rotterdam Coal +8.2% and China Coal +7.8%.

The group of decliners included Baltic Dry Index (27.3%, which may be an example of 2nd chance selling and eventually a double dip), Tin (3.9%), Natural Gas (6%), Sugar (3%), Brent Crude (3.1%), Australian Coal (3.3%), Uranium (3.4%), Bitcoin (7%), Ethereum (5%), AEX (2.1%)< KIBW Banking Index (2.9%), S&P Midcap 400 (2.2%), Russell 2000 (1.7%), China’s CSI 300 (2%), Dow Jones Industrials (1.8%), DJ Transports (3.5%), HSCEI (4.2%), Hang Seng (3.4%), Nasdaq 100 (3.3%), SOX (3.9%), Sensex (3%) and S&P 500 (1.9%).



December 18, 2021

by Rob Zdravevski

rob@karriasset.com.au   

This guy is good

Valuable learning and context within 9 minutes

Macro Extremes (week ending December 10, 2021)

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

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

Lumber

China’s CSI 300 equity index

Overbought (RSI > 70)

the JKM “Japan/Korea (LNG) Marker”

Coffee

Cattle

Urea 

Dutch TTF Natural Gas

and the U.S. Dollar (DXY) Index

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

U.S. 2 year bond yields

Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

The difference between the U.S. 10 year bond yield minus the U.S. 2 year bond yield 



Oversold (RSI < 30)

EUR/USD

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

TRY/USD – the Turkish Lira is historically weak



Notes & Ideas:

The main news over the past week is the impressive (but not surprising) rally in equity indices. The crowd tends to either be short or continue to extend the bubble commentary talk. Its inevitable that markets move to where they can do more damage and going up can damage ‘participants’ as much as it can when it comes down.

In other notes on trends and price action include;

Adding to last week’s 25% decline Henry Hub Natural Gas fell a further 5%.

Gold (in AUD) needs to holds A$2,467 and USD priced Gold equivalent level is US$1,758.

If not, I expect Gold to move lower.

Silver is making new (recent) lows and I’m watching closely if it holds $21.80.

Inversely, watching is Brent Crude trades above $77.00, which be a higher weekly high than last weeks.

Japanese (JGB’s)  and American 10 year government bond yields are testing support lines. Holding these supports is constructive for the general sentiment of risk assets, such as 1.34% for the US 10’s. i.e. you don’t want the JGB’s testing the 0.03% mark nor trading below 0.02%. 

Although not oversold, (its close), a declining GBP versus USD is now at my initial Buy price of 1.3260. I’ll add to British Pound positions if it goes lower.

Positively, for risk assets, the AUDJPY traded higher intra-week and closed higher than the last, although it is yet to break an important resistance line. Broadly, a “double-dip” in equities is still on, unless various currency resistances are breached.

For the contrarians, the Hang Seng China Enterprises Index (HSCEI) had a bullish outside reversal week,

And I want to finish comparing the correlation between Russia’s MOEX equity index against some interest rates and currencies to help confirm risk on/off momentum.

The larger advancers over the past week comprised of the Baltic Dry Index 3.2%, (up 27% in 3 weeks), WTI Crude 8.2%, Gasoil 4.4%, Heating Oil 7.3%, JKM 3%, Lumber 17.3% (adding to last week’s 18.3% rise), Dutch TTF Gas 18.2%, Orange Juice 5%, Gasoline 9.4%, Sugar 5.1%, CRB Index 2.4%, Rotterdam Coal 11%, Australian Coal 9.7%, Shanghai Composite 1.6%, Amsterdam’s AEX 2%, , KBW Banking Index 2.2%, CAC 3.3%, CSI 300 3.1%, DAX 3%, Dow Jones Industrial 4%, Dow Jones Transports 2.7%, Italy’s MIB 3%, BOVESPA 2.6%, S&P 400 Midcap 3%, Nasdaq 100 4%, Sensex 1.8%, Copenhagen 3.9%, Helsinki 2.4%, FTSE 100 2.4%, Stockholm 3.3%, Russell 2000 2.4%, Swiss SMI 3.6%, SOX 2.9%, Nasdaq Transports 2.9%, the S&P 500 3.9%, Australia’s ASX 200 1.6% and Istanbul’s BIST equity index rose 7%, giving it a 46% return in the pasty 8 weeks.

The group of decliners included Aluminium (1.8%), Coffee (4.4%), Natural Gas (5%), Gold in AUD (2.5%), Rice (1.7%), Wheat (2.3%) and Russia’s MOEX equity index (3.9%).



December 12, 2021

by Rob Zdravevski

rob@karriasset.com.au