Current Extremes I See In Markets

Overbought:

Gold ($2,042)
Silver ($27.10)
Natural Gas ($2.22)
Coffee ($1.2155)
Lumber ($622)
Cocoa ($24.81)
the EUR versus the USD (1.1973)
the GBP vs. USD (1.3129)
the Swedish & Danish Krona vs. USD (8.6567 & 6.2743)
* expect higher prices at Ikea and expensive Lurpak butter
Chinese RMB versus the USD (6.94)
* Chinese imports become more expensive
crypto currencies, Ripple (XRP, 0.29880)

Oversold:

the Turkish Lira versus USD (0.1415)
Italian 10 year bonds (0.97%)

Nearly oversold and a Buy is Corn.
Currently at 311. Buy range is 301-307.

In trending news, Soybeans ($8.74) & Lean Hogs ($49.30) look like heading lower.

And Copper ($2.91) is at an early stage of a lower leg.

Incidentally, the AUD was overbought last week

The Nasdaq and S&P 500 are NOT at overbought extremes. There is still upward life in them.

6 August 2020
by Rob Zdravevski
rob@karriasset.com.au

The Fed won’t allow natural price discovery

Manias, exuberance, despair and panic always appear through a cycle. It’s nothing new or “unprecedented”. All that happens is the the subject of love or disgust changes.

Even the increase of money supply isn’t an overly new practice, but what is……is best summarised in the extract below from Seth Klarman’s Q2 2020 newsletter;

“Central banks, led by the Fed, continue to be the predominant driver of financial markets. By holding down interest rates, they influence investors to bid up the prices of securities, irrespective of the economic backdrop. By maintaining these seemingly never-ending policies and wilfully ignoring developing bubbles, the Fed has engineered a strong market recovery even as the unemployment rate tests Great Depression levels……..Investors are being infantilised by the relentless Federal Reserve activity. It’s as if the Fed considers them foolish children, unable to rationally set the prices of securities so it must intervene.

When the market has a tantrum, the benevolent Fed has a soothing yet enabling response.

As with the 30-year-olds still living in their parents’ basements, we can only wonder whether the markets will ever be expected to make it on their own.”

The Deep U.S. Corporate Debt Markets

Seen in today’s Financial Times.

“Google’s parent company Alphabet locked in some of the lowest borrowing costs ever for a US company on Monday, in a $10bn bond sale……

The company sold bonds across six maturities ranging from five to 40 years……The double A-plus rated company’s $2.25bn 10-year bond sold with a coupon of just 1.1 per cent.

Alphabet’s new five-, seven- and 30-year bonds also set record low coupons. The five-year bond priced at 0.45 per cent”

This is what is called Earnings Accretive. It also tells me that management and their board have higher hopes for the value of GOOGL’s stock price.

It’s a symbol of good corporate finance and a robust debt market.

Inversely, Australian companies overwhelmingly issue new stock when raising money.

And so, my questions include;

Why sell equity when debt is so cheap?

Why dilute your shareholders?

Being prepared is half of it

It has been at least 8 weeks since buying any Australian equities……until this week.

Some targeted stocks have come down to prices I’ve been waiting for.

A few more are getting close.

A bit excited.

August 5, 202
rob@karriasset.com.au

Tesla – still not part of the S&P 500

This will be fun to watch when it happens.

Tesla’s market cap is $US277 billion, it’s one of the largest companies in the U.S. yet it isn’t part of the S&P 500Index yet.

“The keepers of that list, S&P Dow Jones Indices, have a rule that new companies must have been profitable in their most recent quarter and over the past year before being added. With its latest earnings, Tesla just crossed that line.

At current prices of Tesla and other stocks, managers of passive funds will have to sell about $US35 billion to $US40 billion of shares in the rest of the index’s companies to make a hole big enough to fit purchases of Tesla shares”

https://www.afr.com/markets/equity-markets/what-will-happen-when-tesla-hits-the-s-and-p-500-20200804-p55ieh

In theory, it’s a buyer’s market

Seen in today’s Australian Financial Review,

“Home listings jump 21pc in Sydney as vendors rush to sell

New home listings jumped 21 per cent in Sydney during July, while new stock in Canberra surged 40 per cent as vendors rushed to sell, possibly in expectation of further price falls.
A total of 2,328 homes hit the Sydney market, while Melbourne added 1,294 stock – a 10 per cent rise ahead of the level four restrictions.”

How are “home opens” or inspections going to work?

EUR & GBP – Overbought

Activate link to view larger image.

Coffee – the anatomy of a pretty trade

 

Rob Zdravevski

Global Investment Advisor at Karri Asset Advisors

July 31, 2020

By Rob Zdravevski

The price of Arabica Coffee is setting up and acting is a very constructive manner to suggest rising probability of notably higher prices.

By no means is this meant to be a comprehensive lesson but I’d like point out some signals (see attached headline chart) which have lead to this call of rising coffee prices.

Firstly, note the vertical yellow line highlighting July 17th, 2020.

On this day, Coffee moved from its meandering price of 98 to close at 102 and technically speaking, it broke above a descending trend line.

Furthermore, ALL AT THE SAME TIME (throughout the July 17th trading day) my specific moving averages “crossed” upwards, the Directional Movement Index (DMI) turned positive (incidentally its strength indicator “blue line” was positioned optimally) and the MACD and its Stochastic Oscillator crossed positively.

But the real “set-up” was in the prior 6 weeks.

From the beginning of June, the price of Coffee ($0.96) registered an oversold reading whilst simultaneously trading at 2 standard deviations below its daily mean. The Stochastic’s were at a matching nadir.

The price of Coffee then proceeded to “digest” and consolidate its decline from its April’s $1.30 high and traded sideways into mid-June. It did so whilst “down” volume was increasing and remained robust – yet it failed to register a subsequent oversold RSI reading.

In other words, it “hung tough”.

Now back to today’s price and action.

Coffee traded up to $1.174 last night, closing at $1.154.

It has risen 14% in the past 2 weeks.

It’s now overbought and extended as referenced by the circles on the RSI and MACD, while the circle on the price chart shows its daily mean is approx. $1.03

The advance is now due for a rest and some price reversion.

So, I am setting up to Buy the Coffee “C” futures contract at $1.06 and $1.03.

Why ?

These technical indicators are also being mimicked by my Weekly indicators and bode well for a longer and stronger rising trend.

Subjectively, coffee has seen a supply/demand distortion, mainly through supply disruption coupled with shipping/delivery constraints. The demand equation has stayed relatively steady, as bean consumption has been distributed from the cafes to the home.

The upside argument is that overall demand will rise once visitation to cafes resembles some sort of normality.

As far as equities are concerned, I’m not sure that the likes of Nestle will be able to pass on rising coffee prices in what seems to be a deflationary environment. This may stifle margins amongst those companies but that’s a different pile of research to conduct.

Incidentally, Cocoa has some similar technical pricing traits to that of Coffee.

rob@karriasset.com

This is not personal advice. Please see my disclaimer.

A difficult upcoming week for the ASX 200