Returns and expectations seem out of kilter

I am sensing the most ungracious amount of sentiment from investors in more than a decade.

It is perverse about the expectations that investors think they should ‘deserve’.

If a stock rises 8% in year, many investors would be pleased with that return, especially if you consider the risk you may have been taking.

10% would be nicer.

In fact, those returns have actually happened over the past 4 weeks.

But I sense, the majority aren’t happy with those returns.

It feels as they are still at the table, still pressing and parlaying.

Lately, some stocks are up 30% within 6 weeks.

Many may still be expecting more than that.

Usually what fixes this scenario and such a moment in time, is markets give those investors a re-adjustment with a good kick in the ass.

Put that in your Wall Street brokerage research report 😂

November 5, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending December 2, 2022)

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) 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)

Chinese 10 year government bond yields

Silver

Platinum

Gold (in CAD)

NZD/AUD

Overbought (RSI > 70)

German 2 year government bond yields

Cattle

Istanbul BIST Index

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

HKD/USD

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

None

Oversold (RSI < 30)

Hot Rolled Coil Steel (HRC)

Chilean 10 year government bond yield

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

U.S. 5 year yield minus U.S. 3 month bill yield spread

Notes & Ideas:

This past week we had reasonably good intra-week swings however on a weekly closing basis, if you closed your eyes, ’twas another benign week.

This is expressed with the 4th consecutive week of the low amount of entrants in the “Macro Extremes” list.

In saying benign, the S&P 500 rose 1.1% and the ASX 200 improved 0.6%.

The big news was that bond yields (as predicted in my various posts) continued to decline. One could call it a trend?

One example in rising bond prices can be seen in the IEF ETF which has rallied in price from $92.70 to $98.70 in 5 weeks.

Keep in mind that my calls for lower interest rates is in the context of moderation (along with inflation) and not a collapse let alone expecting a re-visit those historically abnormal lows.

On the topic of bonds, cryptically the rally in the S&P 500 coincided with my posts about a weekly oversold US5Y minus US3M spread.

Another study which I’ll write about is to highlight the ‘traditional’ yield curve (US10Y-US2Y) is nearing a quinella of being Oversold and what that means.

Oil had a bullish outside reversal week as did the Bloomberg Commodity Index, Aluminium, Hot Rolled Coil Steel, Cotton, EUR/AUD and the Brazilian Real vs USD.

The USD versus South African Rand (ZAR) also pulled off an outside bullish reversal for the week and so I’ll look how a weaker ZAR relates to the prospects for precious metals.

80% of the world’s platinum comes from South Africa.

Urea, Gasoil (diesel) and Gasoline made lower lows.

The Danish Krone (DKK) continued to strengthen against the USD.

The strength in the Aussie Dollar is firming agains the Canadian Loonie.

I’m pondering if there is exhaustion in the S&P 500 as it touched 4,100 points on Thursday December 1st, 2022.

And I’ll be watching if there is trend continuation amongst the DJ Transports, KOSPI, S&P MidCap 400, Nasdaq 100 and the Russell 2000.

The larger advancers over the past week comprised of;

Aluminium 7.4%, Rotterdam Coal 10.6% (up 20% in 2 weeks), Cocoa 2.1%, WTI Crude 4.9%, Copper 6.2%, Hot Rolled Coil Steel 2.4%, JKM LNG 6%, Tin 3.8%, Nickel 3.2%, Palladium 4.4%, Platinum 3.9%, Silver 7.9%, Cotton 3.8%, Brent Crude 2.5%, Silver in AUD 7.1%, Gold in AUD 1.8%, Gold 2.5%, Gold in CAD 3.2%, Dutch TTF Gas 4.8% (up 35% in 3 weeks), Shanghai Composite 1.8%, CSI 300 2.5%, HSCEI 6.7% (up 11% in 2 weeks), Hang Seng 6.7%, BOVESPA 2.7%, Nasdaq 100 2%, Copenhagen 2.4%, Istanbul 2.9%, Nasdaq Biotechnology Index 4%, Nasdaq Composite 2.1% and the ASX Small Caps rose 1.7%. 

The group of decliners included;

Australian Coking Coal (7.3%) down 19% in 4 weeks), DXY Index (1.5%), Lean Hogs (1.6%), Heating Oil (2.2%), Coffee (1.5%), Lumber (6.2%), Natural Gas (10.6%), Orange Juice (3.4%), Gasoline (2.1%), Florida Urea (8.3%), Middle East Urea (6.4%), Corn (3.3%), Oats (6.8%), Rice (2.7%), Wheat (4.5%) and Japan;s Nikkei 225 fell 1.8%.

December 4, 2022

by Rob Zdravevski

rob@karriasset.com.au 

2.5 standard deviations above or below its rolling mean.

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

Chinese 10 year government bond yields

Silver

Platinum

Gold (in CAD)

NZD/AUD

Overbought (RSI > 70)

German 2 year government bond yields

Cattle

Istanbul BIST Index

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

HKD/USD

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

None

Oversold (RSI < 30)

Hot Rolled Coil Steel (HRC)

Chilean 10 year government bond yield

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

U.S. 5 year yield minus U.S. 3 month bill yield spread

Notes & Ideas:

This past week we had reasonably good intra-week swings however on a weekly closing basis, if you closed your eyes, ’twas another benign week.

This is expressed with the 4th consecutive week of the low amount of entrants in the “Macro Extremes” list.

In saying benign, the S&P 500 rose 1.1% and the ASX 200 improved 0.6%.

The big news was that bond yields (as predicted in my various posts) continued to decline. One could call it a trend?

One example in rising bond prices can be seen in the IEF ETF which has rallied in price from $92.70 to $98.70 in 5 weeks.

Keep in mind that my calls for lower interest rates is in the context of moderation (along with inflation) and not a collapse let alone expecting a re-visit those historically abnormal lows.

On the topic of bonds, cryptically the rally in the S&P 500 coincided with my posts about a weekly oversold US5Y minus US3M spread.

Another study which I’ll write about is to highlight the ‘traditional’ yield curve (US10Y-US2Y) is nearing a quinella of being Oversold and what that means.

Oil had a bullish outside reversal week as did the Bloomberg Commodity Index, Aluminium, Hot Rolled Coil Steel, Cotton, EUR/AUD and the Brazilian Real vs USD.

The USD versus South African Rand (ZAR) also pulled off an outside bullish reversal for the week and so I’ll look how a weaker ZAR relates to the prospects for precious metals.

80% of the world’s platinum comes from South Africa.

Urea, Gasoil (diesel) and Gasoline made lower lows.

The Danish Krone (DKK) continued to strengthen against the USD.

The strength in the Aussie Dollar is firming agains the Canadian Loonie.

I’m pondering if there is exhaustion in the S&P 500 as it touched 4,100 points on Thursday December 1st, 2022.

And I’ll be watching if there is trend continuation amongst the DJ Transports, KOSPI, S&P MidCap 400, Nasdaq 100 and the Russell 2000.

The larger advancers over the past week comprised of;

Aluminium 7.4%, Rotterdam Coal 10.6% (up 20% in 2 weeks), Cocoa 2.1%, WTI Crude 4.9%, Copper 6.2%, Hot Rolled Coil Steel 2.4%, JKM LNG 6%, Tin 3.8%, Nickel 3.2%, Palladium 4.4%, Platinum 3.9%, Silver 7.9%, Cotton 3.8%, Brent Crude 2.5%, Silver in AUD 7.1%, Gold in AUD 1.8%, Gold 2.5%, Gold in CAD 3.2%, Dutch TTF Gas 4.8% (up 35% in 3 weeks), Shanghai Composite 1.8%, CSI 300 2.5%, HSCEI 6.7% (up 11% in 2 weeks), Hang Seng 6.7%, BOVESPA 2.7%, Nasdaq 100 2%, Copenhagen 2.4%, Istanbul 2.9%, Nasdaq Biotechnology Index 4%, Nasdaq Composite 2.1% and the ASX Small Caps rose 1.7%.

 

The group of decliners included;

Australian Coking Coal (7.3%) down 19% in 4 weeks), DXY Index (1.5%), Lean Hogs (1.6%), Heating Oil (2.2%), Coffee (1.5%), Lumber (6.2%), Natural Gas (10.6%), Orange Juice (3.4%), Gasoline (2.1%), Florida Urea (8.3%), Middle East Urea (6.4%), Corn (3.3%), Oats (6.8%), Rice (2.7%), Wheat (4.5%) and Japan’s Nikkei 225 fell 1.8%.

December 4, 2022

by Rob Zdravevski

rob@karriasset.com.au 

Rally in gold stocks doesn’t smell right

The rally I’m seeing in gold related equities isn’t stacking up with the moves nor lack of trends in AUD, CAD and USD priced Gold.

Is it a latent move by these stocks to catch up to how they should have acted earlier, due to evident inflation?

I’m thinking that ‘going long’ the equity of gold companies for the medium to longer term is currently a ‘daily’ short term trap.

I’m pondering using the euphoric strength to exit some incumbent positions and take a step back.

Not liking the smell of it.

December 1, 2022
by Rob Zdravevski
rob@karriasset.com.au

A ‘deke’ is short for decoy

Across capital markets, I’m reading the tape whether certain prices can make a ‘higher high’.

If not, exhaustion is setting in.

I’m also watching for bearish outside reversal weeks across various securities.

Inversely, I’m not being paid enough to initiate any new long positions in anything making ‘lower lows’.

Markets are full of dekes.

Similar to when a catcher’s throw to 2nd base looks like its about to sail into centre field, way above the covering baseman……but it doesn’t.

Instead, the leaping shortstop catches the ball.

Upon landing, he looks into the outfield to make out that the ball was thrown too high for him to catch it.

He’s enticing the baserunner to step off 2nd base and ponder heading to 3rd base.

Alas, the shortstop tags him out, with the ‘supposed’ overthown baseball inside his glove.

Try to not get deked out.

November 28, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending November 25, 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)
Cattle
U.S. 2 year government bond yields
German 2 year government bond yields

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)
U.S. 10 year bond yield minus the U.S. 2 year bond yield (curve)

Oversold (RSI < 30)
Hot Rolled Coil Steel (HRC)

The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)
U.S. 5 year yield minus U.S. 3 month bill yield spread
Chilean 10 year government bond yield

Notes & Ideas:

Following last week’s sensible week, this past week was even more so.

It produced the most benign week (lack) of extremes recorded in the 2 years that I’ve been writing this weekly publication.

If I had to pick the biggest news for the week, it would be the continuing weakness and breaking of support levels in selected energy commodities.

We saw a reverberating bounce in gas and coal prices. Rotterdam delivered coal has soared 25% in the past fortnight.
And bond prices generally held up.

Over the past month, the U.S. 20 year bond yields came in from 4.66% to 3.98% and the 30 year’s firmed from 4.42% to 3.78%.
Or put another way, the ‘TLT’ (the 20+ year Treasury Bond ETF) has risen 9% over that same time.

Not bad for a ‘boring bond investment.
In contrast, the S&P 500 rose 3.4% over the same time.

Although I did see an obscure move in the bond markets where the Brazilian 10 year yield rose (against the grain) for the 3rd consecutive week. They are now back to 13.65% compared to their recent 11.85% plateau.

The larger advancers over the past week comprised of;
Rotterdam Coal 16.3%, Baltic Dry Index 11.4%, China Coal 9.1%, JKM LNG 13.6%, Coffee 6.4%, Natural Gas 11.4%, Orange Juice 4.8%, Silver 2.4%, Dutch TTF Gas 12%, Rice 1.9%, KBW Banking Index 2%, DJ Industrials 1.8%, IBEX 3.6%, S&P 400 MidCap 2%, Nickel 1.4%, Oslo Bourse 3.3%, Copenhagen 1.9%, S&P 500 1.5%, TAIEX 1.9%, FTSE 1.4%, Istanbul BIST Index 10.3%, Toronto’s TSX 2% and Australia’s ASX 200 rose 1.5%

The group of decliners included;
Aluminium (2.8%), WTI Crude (4.8%), Gasoil (3.1%), Heating Oil (7.9%), Tin (7.4%), Nickel (3.4%), Palladium (6.1%), Gasoline (3.8%), Sugar (3.6%), Cotton (4.3%), Urea Florida Gulf Urea (2.3%), Brent Crude (4.6%), Middle East Urea (6.9%), Oats (3.2%), Whet (3%), S&P GSCI (2.3%), HSCEI (2.5%) and Hang Seng (2.3%).

November 27, 2022
by Rob Zdravevski
rob@karriasset.com.au

Extracting ideas from this week’s Macro Extremes

From the edition for the week ending November 18, 2022, these investment ideas could make their way into my portfolio, or at least become worthy of ponder.

Macro Extremes (week ending November 18, 2022)

Copper – tactically sell copper from a trading perspective. Inversely, this means don’t buy or chase it at these levels.

This also goes for copper related equities.

Strategically, don’r sell your copper assets and corporate buyers of asset should wait a little longer.

Sugar – farmers should consider locking in selling prices. Equally, higher sugar prices will (slightly) crimp profit margin for the like of Nestle, Lindt, Barry Callebaut and Coca Cola. I say slightly for Cocoa prices (where relevant) are flat to benign over past few years.

Platinum – touched a 2.5 standard deviation overbought level While I expect it to decline a further 7% from its current price of $973, Platinum often precedes a move lower on its less precious cousin, Gold.

Note, this is a trading view and thus tactical.

Silver also produced the same reading and it too, on a daily basis is expected to pullback a little, although both metals are in bullish trends but their strength is waning. This is something to watch.

I bet on lower prices in the interim.

Cattle – it’s opportune for farmers to accept this high price. Not so good for beer processors such as JBS nor buyers of product such as McDonald’s (the single largest beef purchaser in the United States).

This could make plant based alternatives more attractive. I’m yet to do any work on that angle.

Coffee – the price of Arabica beans are cheap. Oversold, at least. This is good for coffee bean importers and roasters to lock in their prices of their ‘green’ beans. Perhaps beneficial for Starbucks and Olam.

Steel – U.S. Midwest Hot Rolled Coil Steel is in the doldrums. Such a trough in prices is commensurate with the out-of-favour behaviour of equity prices in various steel companies.

November 21, 2022

by Rob Zdravevski

rob@karriasset.com.au

Small Caps queue up behind the Copper/Gold Ratio

The Copper/Gold Ratio also correlates well with the S&P SmallCap 600 Index.

Currently, the small caps are trading within and through a range. While the setup for higher prices looks good (for traders), queueing off the Copper/Gold Ratio’s path may be helpful.

The more notable longer term buy signal in the small caps occurred in June 2022.

The S&P Small Cap 600 will need to trade 7% from Friday’s close to make a new ‘higher high’.

Bargain hunters awaiting a repeat or re-visit of that moment, will be tested with any extension of this rally.

It’s a rally to rent, rather than own.

November 21, 2022

by Rob Zdravevski

rob@karriasset.com.au

hmmm….Small Caps….

S&P Small Cap P/E’s not historically challenging.

Large Caps still up there due to high multiples in mega-caps.

If we believed the forward earnings “E” estimates in years gone by, then why does it seem ‘we’ don’t trust it today?

Small Caps were the first to peak, then the first to drop, possibly the first to trough. I don’t paint shapes of “V’s” or anything expecting a bounce,

hence, troughing is fine enough.

November 21, 2022

by Rob Zdravevski

rob@karriasset.com.au