Macro Extremes (week ending November, 24, 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) either 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

SHY – 1-3 year Treasury ETF

Rice

BOVESPA

Overbought (RSI > 70)

Turkish 10 year government bond yields 

Cocoa

Rubber

Uranium

EUR/JPY

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

GBP/JPY

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

Chilean 2 year government bond yields 

British 5 year government bond yield

Swiss and British 10 year government bond yields

Cattle

Oversold (RSI < 30)

Lithium Hydroxide

Nickel 

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

None

Notes & Ideas:

Government bond yields rose slightly.

The TLT ETF broke its 4 week winning streak.

While we saw a slight rise oil yields this past (shortened trading) week, I continue to highlight many have fallen for the past 4-6 weeks and remain below the highs being recently heralded.

So much so, 6 weeks ago, the price of the IEI ETF was $112 and now is trading at $114. That’s a 1.8% capital gain, while not including the 0.45% in dividends (coupons) paid over that time.

Other misnomers and surprises include the BoA 5-7 year corporate bond yield is hovering at the same yield as September 4, 2023 and the same as November 7, 2022 and as previously seen on September 19, 2022.

British yields are flirting with a drop into oversold territory.

And as prompted in last week’s edition, Swiss 10 year government bond yields did enter oversold territory this week. 

Equities experienced a diverse week, with several indices ending near last week’s closing prices, showing marginal fluctuations of within +/- 1%. Advancing stocks slightly outnumbered declining ones during this period.

The following indices have risen for 4 consecutive weeks; DAX, DJ Industrials, Nasdaq Composite and the 100, KOSPI, Nikkei 225, Sensex, Copenhagen, S&P 500 and the TAIEX.

Brazil’s BOVESPA and the IPC Mexico Index are in a 5 week winning streak. The former appearing in this weeks overbought category.

The KOSPI has risen 8% in the past 4 weeks following it registering an oversold extreme.

The Nasdaq Transports and the Composite have advanced 11% and 12%, respectively, over the same time.

The ASX 200 rose 0.1%, the ASX Materials climbed 0.2%% while the ASX Small Caps and ASX Industrials fell 0.9% and 0.8% respectively.

And India’s SENSEX seems to be amongst the most extended of bourses, for it trades at 24% above its 200 week moving average.

Commodities were generally flat to weaker, with the commodity indices being influenced by the larger weighting of the energy contracts.

In fact, the S&P GSCI Index has fallen for 5 consecutive weeks.

WTI Crude, Brent Crude, Gasoline and Nickel are sporting 5 week losing weeks.

WTI Crude is at its lowest weekly closing price since early July 2023. So much for geopolitical risks affecting the Oil price??

Inversely, Lumber is in a 5 week winning streak as is the Copper/Gold Ratio.

Orange Juice fell 1% which was enough to shift it out of overbought territory, although mean reversion to its 200 week moving average beckons.

Natural Gas has slumped 20% over the past 3 weeks.

The Baltic Dry Index has soared 38% in the past 3 weeks. 

Oats were in the oversold category 2 weeks ago. This past week, their price soared 13% higher. ,

Cocoa broke its 7 week winning streak and similar to Orange Juice, mean reversion risk lies below.

Uranium remains overbought for an 15th consecutive week.

Lithium Hydroxide declining streak extends to 20 consecutive weeks,

Last week’s note that Silver had a bullish outside week saw it follow through with a 2.6% gain this week.

Gold as priced in AUD has declined for each of the past 4 weeks

And I see price digestion in the (softs) agricultural’s.

Amongst currencies, the Australian Dollar was stronger again.

The AUD/USD closed at its highest levels since late July 2023.

The AUD/JPY is nearly overbought, while the AUD/ZAR soared 3.5%.

EUR/JPY is at its highest close since August 4th, 2008.

The Yen was weaker everywhere.

The Canadian Loonie was mixed. It was weaker versus the AUD & GBP….and stronger against the EUR & USD.

And I’m reflecting about the August 19, 2023 high seen in the AUD/CHF and if it coincided with a peak in ‘risk-on’ sentiment.

The larger advancers over the past week comprised of;

Baltic Dry Index 15.5%, China Coking Coal 4.5%, Gasoil 2.4%, Copper 1.5%, Heating Oil 2.2%, Lumber 2.6%, Newcastle Coal 3.1%, Palladium 2.1%, Rubber 1.6%, Dutch TTF Gas 3.5%, Uranium 3.3%, Silver USD 2.6%, Oats 13%, DJ Industrials 1.3%, IBEX 1.8%, Oslo 1.5%, Stockholm 1.4%, SMI 1.3%, S&P 500 1% and the Nasdaq Transports rose 1.4%.

The group of decliners included;

WTI Crude (1.2%), Lean Hogs (4.3%), Cattle (3%), LNG JKM in Yen (3.8%), Lithium Hydroxide (1.7%), Tin (2.9%), Natural Gas (3.6%), Nickel (4.6%), KRE Regional Bank Index (1.8%) and Thailand’s SET Index fell 1.3%.

November 26, 2023

by Rob Zdravevski

rob@karriasset.com.au

Happy Birthday Mama !

There is more to being Oversold

It is 9 years ago, to the week….when Woolworths Group (the Australian supermarket retailer, food company and possible property developer)…..last saw its shares registering an oversold weekly reading.

While this moment is rare, there are nuances to this current (and the previous) occurrence.

Its current downtrend is strengthening.

I’m implying that the stock pice could trade down to the $30 region before finding any exhaustion.

Some investors may be surprised about its recent decline from $40, especially for a supposed defensive stock, let alone should it see $30.

But others wouldn’t be considering its a 2.5% net margin business which is carrying net debt equal to nearly 6 times its EBIT.

November 22, 2023

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending November 17, 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) either 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

SHY – 1-3 year Treasury ETF

Rice

AUD/JPY

GBP/JPY

BOVESPA

Overbought (RSI > 70)

Turkish 10 year government bond yields 

Cocoa

Orange Juice

Rubber

Uranium

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

EUR/JPY

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

Chilean and British 2 year government bond yields 

And British 3, 5 and 10 year government bond yields.

Oversold (RSI < 30)

Lithium Hydroxide

Nickel 

Palladium

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

None

Notes & Ideas:

Government bond yields fell. Some have declined for 4 consecutive weeks.

Japanese 2 year bond yields fell sharply. The 5’s and 10’s also declined notably with the latter seeing a week on week change from 0.84% to 0.73%.

Swiss 10 year government bond yields were overbought last week and soon maybe entering oversold territory.

Equities had a positive week, almost everywhere.

So much so, no index appears in this week’s decliners list.

Chinese indices were subdued while Australian indices lagged the surging pack.

The ASX 200 rose 1%, the ASX Materials climbed 1.4% and the ASX Small Caps advanced 1.3%

The standout was the recently oversold ASX Industrials Index which soared 3.1% for the week.

It is worthy to note that various indices are now closing in on overbought territory, which tells me that this recent rally could be a short term trap.

Mexico’s index is in a 4 week winning streak.

Over the past 3 weeks, the DAX has risen 8%, the Nasdaq Composite has climbed 11%, while the KBW Bank Index has soared 16%.

Commodities generally rose, following a few weeks of weakness.

In fact, there were some substantial advancers as seen in the list below.

Silver, Palladium, Platinum and Orange Juice led the way.

Last week’s oversold entrants, Cotton, Coffee, Cattle, Newcastle Coal, Platinum, Oats….are no longer so.

Cocoa and Rubber are in the midst of 7 week winning streaks.

Energy contracts were still weaker, especially the Gases.

WTI Crude has closed at its lowest point since early July 2023. It is in a 4 week losing streak and had fallen It has fallen 15% over that time.

Incidentally, Brent Crude has also declined for 4 consecutive weeks.

Inversely, Heating Oil ended its 4 week losing streak, although its downtrend remains intact.

Natural Gas has slumped 14% over the past 2 weeks.

Baltic Dry Index rallied 23% in the past fortnight.

Uranium remains overbought for an 14th consecutive week.

while Lithium Hydroxide declining streak extends to 19 consecutive weeks,

And Silver had a bullish outside week.

Amongst currencies, the Australian Dollar was stronger, reversing last weeks weakness.

The Canadian Loonie was weaker along with the USD.

The DXY Index fell 1.9% for the week.

The Euro also exhibited strength.

The Yen remains weak and various pairs are appearing in the reciprocal overbought category.

The larger advancers over the past week comprised of;

Australian Coking Coal 2.1%, Baltic Dry Index 10.8%, Cocoa 2.3%, China Coal 2.5%, Cotton 5.4%, Gasoil 1.7%, Copper 4.2%, Lumber 5%, Tin 2.2%, Orange Juice 11.9%, Palladium 8.2%, Platinum 6.6%, Uranium 5.8%, Silver in AUD 4.1%, Silver in USD 6.6%, Gold in USD 2.2%, Rice 4%, AEX 1.7%, KBW Banks 6.9%, CAC 2.7%, DAX 4.5%, DJ Industrials 1.9%, DJ Transport 3.5%, MIB 3.5%, IBEX 4.2%, BOVESPA 3.5%, Indonesia 1.9%, S&P SmallCap 600 5.2%, Nasdaq Composite 2.4%, KRE Regional Banks 9.3%, KOSPI 2.5%, FTSE 250 4%, S&P MidCap 400 4%, Mexico 2.8%, Nasdaq Biotech 2.1%, Nasdaq 100 2%, Nikkei 3.1%, Copenhagen 4%, Helsinki 2.4%, Stockholm 3.9%, Russell 2000 5.6%, SET 1.9%, S&P Small Cap Value 5.4%, FTSE 100 2%, SMI 1.7%, SOX 4.3%, Chile 2.6%, S&P 500 2%, TAEIX 3.2%, Nasdaq Transports 3.7% and Toronto’s TSX rose 2.7%.

The group of decliners included;

Rotterdam Coal (3.1%), Coffee (2.3%), JKM LNG (3.9%), Lithium (1.9%), Newcastle Coal (3.1%), Natural Gas (2.4%), Gasoline (1.6%) and Dutch TTF Gas fell 3.4%.

November 19, 2023

by Rob Zdravevski

rob@karriasset.com.au

Happy Birthday Vida !

Equity markets are making good shapes

A monthly overbought ‘5 year forward real interest rate’ portends a trough in the S&P 500, 3 or 4 months hence.

The circles highlight the overbought 5 year real rate.

The rectangles point to the trough in the S&P 500.

November 16, 2023

by Rob Zdravevski

rob@karriasset.com.au