rob zdravevski's blog

Still more downside in Tesla

In this January 2022 note about Tesla’s stock price, I said…..

“If Tesla’s stock price breaks below $835, $814 is a minor stopping point, beyond that we’ll look for a visit to $650, then $567 while $519 would represent a good shake-out.”

If Tesla breaks below $835….

Since then, the chart below shows that it broke below that $835 support, while it didn’t reach $650, it paused at $700 before attempting its next rally, which didn’t produce a ‘higher high’.

Today, Tesla’s stock price is sitting just above that $650 and I still see Tesla on track to test those lower prices mentioned in that January 2022 post.

For a bit of sport, I think the stock can trade into the $461 – $470 region as we enter late August or early September 2022.

Observe the rolling mean

Another relevant point I want to make is the 200 week moving average (which has been a feature of my longer-term mean reversion thesis) does move and often it rolls higher.

For example, in September 20021, that 200 WMA was $240. In January 2022 it was sitting around $320 and now it is at $415.

The mean is a ‘living’ and dynamic thing.

One could say that while prices are under a gravitational pull towards the mean, the mean is equally busy converging towards the current stock price.

July 7, 2022

by Rob Zdravevski

rob@karriasset.com.au

Oil & Copper also correlates to the GDP Rate

With a mid cycle slowdown amongst us, market watchers are watching for a contraction in GDP.

After all, that is the measure which labels whether or not an economy is in a ‘recession’.

Similarly to the inflation number written in this post,

Crude Oil is your inflation proxy

Crude Oil and Copper prices are reasonably good barometers of the economy’s health with the latter being more so, with the demand side of the equation dominating the price discovery.

In the charts below, the U.S. GDP Rate appears in brown.

July 6, 2022

by Rob Zdravevski

rob@karriasset.com.au

We’re going back to the office

The low is in for Jones Lang LaSalle (JLL) stock.

It’s time to go back to the office !

3 weeks ago, the stock traded below $155, which satisfied my specific trifecta of trading below 2.5 standard deviations, registering a Weekly Oversold reading and touching its 200 week moving average.

Today, the stock is trading at $181.

In September 2020, I wrote a note, that ‘the big cities won’t die’.

Within it, I listed JLL as a stock to watch when the ‘novelty’ and inefficiency of ‘working from home’ wanes.

And there are other ancillary, property related stocks that are showing similar ‘bottoming’ characteristics.

July 5, 2022

by Rob Zdravevski

rob@karriasset.com.au

Accenture closing in on target

For more sometime, I have been espousing about the pending mean reversions which tend to follow parabolic price rises.

6 months ago, I wrote this note about Accenture’s extraordinary rise to $415 and triggering long term Overbought signals. Since that note, the stock didn’t travel any higher than that price.

Wow ! Accenture Wow !

Since then, the stock has declined 33% as it approaches its 200 week moving average.

Even more notable is that its market capitalisation has declined $90 billion.

Now, the stock price is $280 and I am looking for it to visit $255, preferably $248, which would satisfy the mean reversion.

July 3, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending July 1, 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)

Brazil 10 year government bond yields

Overbought (RSI > 70)

U.S. Dollar Index

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)

Copper/Gold Ratio

Corn

Oats

Soybeans 



Oversold (RSI < 30)

Hot Rolled Coil Steel

Bitcoin (incl GBTC)

Ethereum

JPY/USD

GBP/USD

KRW/USD

INR/USD

SEK/USD

IDR/USD

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

South Korea’s KOSPI equity index

Taiwan’s TAEIX equity index

Copper

Tin

Chilean Peso / U.S. Dollar

Notes & Ideas:

This week’s biggest news was that no developed world bond yields appeared in the Overbought extreme section. After some weeks of appearing on this publication, yields eased across the board.

Over the past 2 weeks, we saw German yields fall from 1.92% to 1.23%, Australian 10’s declined from 4.25% to 3.47%, U.K. Gilts eased from 2.74% to 2.10%, JGB’s have nearly halved from 0.42% to 0.21%, Swedish 10’s fell from a yield of 2.18% towards 1.54% and U.S. 2’s moved from 3.45% to 2.84% while the 10’s fell commensurately from 3.50% to 2.89% and the yield curve is yet to invert.

The carnage of bond losses is offering some reprieve to those recent buyers.

The other news is the continued decline in commodity prices.

Silver fell heavily enough that it touched its 200 week moving average.

Coal, Aluminium, Cocoa, Iron Ore and Platinum are nearing a ‘buying zone’, as is the Philadelphia Semiconductor Index which has tanked 40% from its New Year Day’s high.

Silver may be an interesting buy at US$18.65, more work to be done.

Some previous posts (published on July 3, 2022) have featured comments about Copper and its correlation to GDP and Interest Rates. Today, Copper has seen its lowest price since February 5, 2021, a 17 month low. 

Some currencies saw larger than normal moves, namely in the AUD/JPY and the AUD/USD, where they shifted 1.8%. The South African Rand dropped 3.4% and the Chilean Peso (vs USD) also weakened. Notice the commodity centric currencies all have softened in unison with lower commodity prices.

Corn is back to late January 2022 prices, which is a month (and lower) prior to the Ukrainian invasion.

I’m pondering that Brent Crude has risk from its current $111 down to $70 and so I wonder what would this say about the inflation readings we may see in Q2 of 2023. Remembering that inflation figures are a lagging indicator.

Natural Gas continues to fall. It fell 8% for the week, even following a 5.6% rebound rise on Friday.  Before the Friday bounce I wrote a seperate note about closing the ‘short trade’ and taking the ‘fat part of the trade’. This cheaper price will now benefit certain company’s inputs. The same cheaper input question applies to those companies in the business of buying Cotton.

While, ‘the other gas’, LNG has soared 52% in 2 weeks. I didn’t see that ‘trading surge’ coming.

Tin is in the Overbought column falling another 6%, which is now sank 30% in the past 3 weeks.

Gold (in AUD) is trading up against some important resistance.

I see a possible 70% long-term decline in the price of Coffee.

And I may write more about the Oversold, contrarian risk indictors that Bitcoin and Ethereum have become.

The larger advancers over the past week comprised of; 

China Coal 6.1%, JKM 4.3%, Lumber 15.3%, LNG 6.4%, Orange Juice 4.8%, Palladium 4.5%, Dutch TTF 15%, Urea (U.S. Gulf) 6.6%, Uranium 2.3% and China’s CSI 300 1.6%.

The group of decliners included;

Australian Coal (22.8%), Aluminium (1.1%), Bloomberg Commodity Index (3.5%), Baltic Dry Index (5%), Cocoa (4.9%), Gasoil (5.8%), Gold (0.9%), Copper (3.7%), Heating Oil (9.7%), Hot Rolled Coil Steel (17.5%), Tin (6.4%), Natural Gas (7.9%), Nickel (2.7%), Platinum (3.6%), Gasoline (5.1%), Silver (6.9%), CRB Index (2.3%), Cotton (1.7%), Urea – Middle East (1.9%), Silver in AUD (4.3%), Corn (17.4%), Oats (5.3%), Wheat (9.7%), Soybean (2%), Bitcoin (8.8%), Ethereum (12.8%), GBTC (11.6%), KBW Banking Index (2.4%), CAC (2.3%), DAX (2.3%), Dow Jones Industrials (1.3%), DJ Transports (1.9%), MIB (3.5%), Kospi (2.6%), S&P Midcap 400 (1.6%), Nasdaq 100 (4.3%), Nikkei (2.1%), Russell 2000 (2.2%), SOX Index (9.6%), S&P 500 2.2%, TAIEX (6.3%) and the Nasdaq Composite slumped 4.1%.

July 3, 2022

by Rob Zdravevski

rob@karriasset.com.au  

The trusty Copper/Gold Ratio

As I revisit this post about the Copper/Gold Ratio from May 2022,

Copper/Gold Ratio leads them all

Today, I write…..

The Copper/Gold Ratio tends to lead changes of direction when relating it to U.S. 10 year interest rates.

This week the Copper/Gold Ratio traded down to 2.5 standard deviations below its weekly mean and touched its 200 weekly moving average.

To boot, the Copper price itself, registered a Weekly Oversold reading and a negative 2.5 standard deviations ‘extreme’. 

Now, I expect the prices on this chart to converge.

Meaning, the Copper price rises and 10 year bond yields decline a little more. There is slightly more emphasis on the latter.

July 3, 2022
by Rob Zdravevski
rob@karriasset.com.au

IPO’s have dramatically decline

In the Americas, during the quarter just completed (Q2, 2022), IPO’s raised only $2.5 billion.

During the same quarter, one year ago, IPO’s raised $49 billion.

That’s a decline of 95%.

The PDF link from EY contains a bunch of data for the statistical nerds.

Ultimately, it’s a reminder that when IPO’s are being offered in abundance (as they were throughout 2021), it’s a reasonably good signal that equity markets are nearing the end of its bull run.

Miraculously, a plethora of IPO’s coincides with above average prices or valuations.

Remember, that investment banks work for the seller (of the asset or the security). It is the seller that pays them to find buyers and in the latest wave of IPO’s the sellers of the shares were the incumbent owners.

Seldom did I see circumstances where new shares were being issued for the purpose of raising capital. Furthermore, many prospectuses showed that little cash was being retained for the corporation for “General Purposes”, instead funds often flowed to founders or private equity firms selling their stake.

Hint: Today, I don’t hear or see of many IPO’s coming to market.

July 3, 2022

by Rob Zdravevski

rob@karriasset.com.au

Coming Soon – Price Discounting Wars

Inventories and Margins.

These are two words I’ll be scanning for in the upcoming U.S. quarterly earnings transcripts.

Amongst a mid-cycle slowdown, I expect companies to engage in ‘price discounting’.

This may last 6 months or so, as companies are now holding too much stock.

This was partly driven by their desire to secure product by any means during a supply chain problems and paying too much for this scarcity.

Those higher ‘produced’ prices are a combination of rising commodity & labour costs.

In this May 2022 post about Lumber, 

Lumber prices barreling lower again

I wrote the following;

“For those watching inflation, it’ll be interesting to watch how the higher prices of the past several months will affect lumber yards, timber truss manufacturers and homebuilders as they try to pass on higher ‘finished’ prices compared to the more competitive prices buyers of lumber can achieve today?”

Below are 2 examples of how that same story may be applied to competitors in the Hot Rolled Coil Steel industry.

Example 1

Let’s assume Company ABC bought their steel at prices somewhere within the shadowed areas appearing the chart below, let’s say it was bought at a mid point of $1,400 per ton….

then the steel is worked into an I-Beam as used in the construction industry,

then we add 30% in labour and production costs along with a selling margin,

the price of this ‘produced’ steel is now $1,800.

Example 2

While Company XYZ is buying steel at todays price of $930 per ton and after adding 30%, 

they are able to sell the same produced product for $1,200 per ton.

You can see how Company ABC may be pressured to discount their inventory and thus hurting their margins, let alone encouraging other competitors to increase production and gain market share.

Albeit, their inventory isn’t perishable, the unknown of whether market prices will return to their highs will play on Company ABC’s decision to hold or move their stock. 

This anticipated discounting this will be deflationary.

July 1, 2022

by Rob Zdravevski

rob@karriasset.com.au

Reviewing an Oil call from 12 months ago

In this post from June 28, 2021 (one year ago), I called a high in Brent Crude Oil.

It was real close.

Looking for interim peak in Crude Oil

The post then called for a shakeout. Well, it wasn’t quite that but it did fall 15% as the Oversold circles show in the chart below.

Lo and behold, Brent Crude Oil did trade up to $120 – $140 region as predicted

In fact, the high was $138 per barrel.

Now, I watch whether it breaks an important support line around the $108.50 mark.

June 30, 2022

by Rob Zdravevski

rob@karriasset.com.au

Crude Oil is your inflation proxy

Gold hasn’t been a good inflation hedge

Whether you want to call it a hedge or a proxy, the chart below shows the WTI Crude Oil price (in blue) laid over the U.S. Inflation Rate (the orange line).

If you don’t want to get involved in an interest rate trade and you are thinking that inflation will rise, buying long-dated Oil call options have worked a treat.

Be careful, this theory works when inflation is (or about to) rise.

It doesn’t work if inflation stabilises or remains constant.

Today, you’ll need to be aware of where the pendulum is, for both of them.

June 30, 2022

by Rob Zdravevski

rob@karriasset.com.au