Macro Extremes (week ending August 20, 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)

Cocoa

Italy’s MIB equity index

the US 10 year minus Australia 10 year bond yield spread

Overbought (RSI > 70)

Hot Rolled Coil Steel (for the 47th consecutive week)

Switzerland’s SMI equity index (for the 11th week)

the Nasdaq 100 index

Amsterdam’s AEX index

India’s NIFTY 50 equity index

the Copenhagen 25 equity index

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

cryptocurrency Cardano

Assets (securities) within my immediate universe 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)

AUD/JPY – a stronger Yen was telling us the market was ‘risk-off’

AUD/EUR – a rising Euro prompts converting it back to AUD

NZD/USD – the Kiwi fell 3% against the USD for the week

CAD/USD – continuing the trend of commodity currencies weakening against the USD

KRW/USD – a fall in an export sensitive currency, being the Korean Won

China’s CSI 300 equity index

the Hang Seng equity index 

Brazil’s Bovespa equity index

Korea’s KOSPI (which fell 3.5%)

and most interestingly, the small cap Russell 2000 equity index

Oversold (RSI < 30)

 Chinese Government 10 year bond yield (suggesting bonds where being bought aggressively)

AUD/GBP – telling me that the Pound is strong

the Hang Seng China Enterprises Index

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

AUD/USD, where the AUD fell 3.2% for the week against a strengthening U.S. Dollar

Notable deletions from last week’s list include;

Tin following 16 consecutive weeks of being Overbought 

Australia’s ASX 200 after being Overbought for 4 weeks

the S&P 500

and the Oslo, Stockholm and Helsinki equity indices.

Notes & Ideas:

The sign-off from last week’s Macro Extremes edition was “ What a week is coming up” and indeed it did become so.

Most of the action seen in the past week were in the commodity currencies and in commodity prices themselves. We mainly saw declines in the energy, softs and hard metals. This was accentuated with the large move in the DXY rising above an important resistance line of 93.10 to close at 93.56. 

Other declines were amongst the equities markets where indices were seen falling between 2% and 6% for the week.

Declines were also evident in government bond yields, meaning that aggressive buying of bonds are sympathetic and symbiotic with falling equity prices.

On the topic of bond yields, the Aussie moved from 1.19% down to 1.07%, the Gilts fell from 0.58% to 0.53% and the Kiwi (bucked my last week prediction) to fall from 1.76% to 1.62%. The U.S. 10’s were unchanged. 

Inversely and perhaps as a predictor, the JGB’s were promising for the ‘risk-on’ community as they improved from 0.009% to 0.0170%. This ‘risk-on’ positive premise was mirrored by a big move in the U.S. 10 year minus Australian 10 year bond yield spread, moving from 0.0940% to 0.1850%, which sees it firmly moving above an important resistance line.

When coupling these two last indicators with an Oversold AUD/JPY, it is worth pondering that this week’s decline in equities will be brief and shallow.

This weekly ‘Macro Extreme’ note has previously reported Overbought extremes in equities and commodities and what you’re seeing now is that some are at the beginning of main reversion and others simply trying to develop a new trend. 

The most obvious extremes which I’m currently finding in the market is the depth of oversold in Asian equities namely those associated with Chinese equities.

The decliners over the past week included Tin (7%), Lumber (3%), Gasoil (6.2%), WTI Crude (9.2%), Brent Crude (7.5%), Copper (5.8%), Heating Oil (8.2%), Coffee (2.2%), Nickel (6%), Platinum (3%), Gasoline (10.5%), Silver (3%), Corn (5%), Soybean (6%), Wheat (4.5%), the CRB index (4.6%), the U.S. banking index (3.6%), France’s CAC 40 (4%), China’s CSI-300 (3.6%), the HSCEI (7%), the Hang Seng (6%), Bovespa (2.6%), Nikkei (3.5%), Taiwan’s TAEIX (3.8%) adding to last week’s 3% fall, the SOX (2.4%), the S&P Midcap 400 (2%) and the ASX 200 (2.2%).

Amongst the carnage, the S&P 500 only declined 0.6% for the week.

The only Advancers were the Copenhagen equity index rising 1.4% and the Gold price (as priced in AUD) rose 3.3%.

The most notable mover in crypto land was Cardano which rose 14%, adding to last week’s 52% advance.

And lastly, Bitcoin is trading 230% above its 200 Week Moving Average, which is higher than last week’s 215% reading and notably higher than the reading of 140% seen 6 weeks ago, while certainly lower when compared to its 466% peak in mid-April 2021.

August 22, 2021

by Rob Zdravevski

rob@karriasset.com.au

Don’t Believe The Hype

Isn’t it funny how the business media frames the things which they want you to hear?

Recent examples include;

when Bitcoin was falling below $30,000 the headline news was about a ‘death cross’ (when the 50 day moving average moves below its 200 day MA) suggesting lower prices. No news lately since Bitcoin bounced 50%….

and then there was Robinhood shares doubling in 1 day from $40 to $85. No news lately that they have halved again back to $44…..

Between March and May everyone suddenly knew that Lumber doubled in price from $800 to $1,700…..do they know that it has fallen 75% to $470 since then?……

and a host of “hot” IPO’s are no longer being reported on or about…..

Take Bumble and Latitude Financial for example, both are down 30% from their opening print, U.S. BNPL stock Affirm is down 55% from its peak and a host of others.

There is merit avoiding or questioning the consensus and some skill required to filter the noise, whilst there isn’t a substitute to doing your research and analysis.

August 20, 2021

by Rob Zdravevski

rob@karriasset.com.au

Lumber entering a Buy range

A year ago I was writing about the parabolic price move in Lumber and since then I’ve spoken at various events about the importance of ‘honouring’ or respecting that parabolas are followed by a regression to the mean.

Of course, you can always pick the ‘mean’ which suits your story.

Mean reversions following parabolic moves are also good for shaking out the un-natural owners of an asset, commodity or token, perhaps.

Lumber has fallen 72% since its mid-May 2021 high.

Perhaps many should ask their homebuilder if the construction quote is any cheaper now?

Even so, Lumber may be at a price where it’s safer to buy.

Another 2% lower should do it, $461 looks like a good entry point.

August 17, 2021

by Rob Zdravevski

rob@robzdravevski

Macro Extremes (week ending August 13, 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)

Cocoa

Sugar

USD/KRW (meaning a weak Korean Won)

Germany’s DAX

Overbought (RSI > 70)

Tin (for the 16th week)

Hot Rolled Coil Steel (for the 46th consecutive week)

Switzerland’s SMI equity index (for the 10th week)

Australia’s ASX 200 (for the 4th week) 

India’s NIFTY-50 equity index

France’s CAC-40 index

the S&P 500 and Nasdaq 100

and the Oslo, Stockholm, Copenhagen and Helsinki equity indices.

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

Amsterdam’s AEX index

Italy’s MIB equity index

Assets (securities) within my immediate universe 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)

Gold, Silver & Platinum (all oversold extremes occurred on Monday, due to a large Gold sell order and the precious metals are reacted suit)

Oversold (RSI < 30)

 Chinese Government 10 year bond yield (suggesting bonds where being bought aggressively)

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

 Nil

Notable deletions from last week’s list include;

a range of Government 10 Year bond yields and Chinese related equity indices from their Oversold extremes.

Notes & Ideas:

Since their recent overbought readings, energy commodities continued to decline and seeming to commence new downtrends.

The decliners included Iron Ore (4%), Lumber (10%), Natural Gas (7%), Taiwan’s TAEIX (3%).

Advancers were dominated by soft commodities where Sugar rose 6.8% for the week (adding to last week’s 7%), Wheat climbed 6%, Soybean & Corn advanced 2%, Coffee soared 6%, Platinum bounced 5%, while equity indices such as the Swiss SMI, Italy’s MIB and the U.S. KBW Banks rose 2%.

It’s worth to review two of the major longer term (Lean Hogs and Lumber) Overbought extremes seen in the earlier part of 2021. They are now 30% and 71% below their respective June and May highs, and yet they are not yet ‘Oversold’.

While, this past week saw Wheat close at its contract high since February 2013.

The 10’s remain bound in a larger range but we watch it as broader capital markets could become explosive is the 10’s break decisively either below 1.15% or above 1.45%. They closed on Friday at 1.28%.

The risk of lower commodity prices remains as the U.S. Dollar Index (DXY) strengthens and trends higher, although the DXY needs to break above 93.10 to confirm so.

The Copper/Gold ratio seems to be trending higher, telling us the economy is healthy. A turn lower will change this view and aid the correlation of lower interest rates.

The Australian 10 Year Government bond yield continue to trend lower, although the trend and yields seem close to bottoming. A lower yield will correlate with a weaker AUD while the Kiwi 10 Year bond yields are establishing an early, new upward trend.

This in turn will affect the US 10 year minus Australian 10 year yield spread the most interesting indicator to watch. Last weeks poke higher (to a 2.5 standard deviation extreme) and subsequent reversal suggests a weaker S&P 500 for the next 2 weeks.

Another risk indicator to watch is the AUD/JPY. Whilst it remains below 81.65, the risk of lower equity prices also remains, especially the divergence currently being seen against the S&P 500. 

And I continue to watch the Japanese 10 Year bond yield which needs to stay above 0.00% to assist a bullish equities case. It’s currently 0.009%.

What a week coming up !

No cryptocurrencies registered any Extreme readings.

And lastly, Bitcoin is trading 215% above its 200 Week Moving Average, which is higher than last week’s 200% reading and notably higher than the reading of 140% seen 2 weeks ago, while certainly lower when compared to its 466% peak in mid-April 2021.

August 13, 2021

by Rob Zdravevski

rob@karriasset.com.au