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Macro Extremes (week ending July 8, 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)

Dutch TTF Gas

Overbought (RSI > 70)

Canadian 10 year government bond yield

U.S. 2 year government bond yields 

U.S. Dollar Index

Istanbul’s BIST 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

Bloomberg Commodity Index

Gold

Corn

Oats

Soybeans

Wheat

Germany’s DAX Index



Oversold (RSI < 30)

Hot Rolled Coiled Steel

Tin

EUR/USD

GBP/USD

INR/USD

JPY/USD (for the 17th consecutive week)

TRY/USD

IDR/USD

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

Copper (and 200 WMA)

South Korea’s KOSPI equity index

Taiwan’s TAEIX equity index

Chilean Peso / U.S. Dollar (3rd consecutive week)

DKK/USD

SEK.USD

Notes & Ideas:

This week’s biggest news was pullback in selected commodity prices and the advance in many developed market equity indices. 

In an earlier post, I question ‘what if the lows have already been seen”?

In other news, it was a busy week for currencies,

The Euro made new lows.

The Korean Won is not oversold this week.

The AUD/USD made a lower low and its something to watch. Last week’s Macro Extremes talked about a break below 0.6830 opens up probability to wards 0.6570.

The Russian Ruble rose 28% for the week against the U.S. Dollar.

The South African Rand continues its weakness and is nearing a Weekly Oversold reading.

The Danish Krone is cheap, but I’d like to see the OMXC25 (Copenhagen) Index fall a further 12% and then I’ll look at Carlsberg, Vestas Wind Systems or Maersk.

The U.S. yield curve inverted again…..more on that in a seperate note.

Some of the stubborn ‘hold-outs’ in the energy complex fell for the week except for those which have been bludgeoned lately such the Natural Gas price, which following a 4% dip on Friday alone, still managed to produce a weekly gain of 5%….albeit recovering part of last week’s 8% fall.

And the Dutch TTF Gas price rose 19% for the week, as the market is watching if Russia proceeds with its 10 day closure of the NordStream 1 Pipeline, commencing Monday July 11, 2022.

Incidentally, Dutch TTF has soared 86% over the past 4 weeks.

While Lumber rose 5% adding to the previous week gain of 15%. I’ll wait for a lower price, is in the meantime, it can go without me.

Over the past 2 weeks, Gasoline and Gasoil (diesel) has fallen 13%, Heating Oil declined 17%, Australian Coal prices have tanked 35%, the Baltic Dry Index swooned 12% and Tin eased 10%.

The crowd all expect energy prices to rise.

What if they halve as we head into the Northern Hemisphere winter?

I still have a developing view that Coffee will decline notably. It’s fallen 10% since I raised this thought a couple weeks ago and I’m musing that it may ease a further 60%. That will look good for Nestle or Starbucks….

Speaking of predicting declines, the CRB Index has sunk 12% recently and I still think it has 33% more to go, towards its long term mean reversion.

The weakness in Gold and Silver in both USD and AUD was also noticed.

In another set of pondering, what would the consensus view for the commodity cycle look like, should that occur?

Lows are ‘nearly there’ in Australian Coal, Aluminium , Iron Ore prices with the later falling below its 200 week moving average. 

In equity indices the Italy’s MIB, Brazil’s Bovespa, the S&P MidCap 400 and S&P 600 SmallCap are also approaching Oversold.

I’m still expecting a ‘double dip’ in some indices but I’m not categorising anything resembling a crescendo or capitulation. It’s just price action.

I’ll watch for a low in the Dow Jones Industrials of 29,440, the DJ transports at 12,130 and the S&P 500 to visit 3,333 – 3,322.

The larger advancers over the past week comprised of; 

Rotterdam Coal 5.4%, DXY 1.7%, Hogs 3%, Lumber 5.6%, LNG 6.4%, Natural Gas 5.3%, Palladium 11.3%, Sugar 5.3%, Dutch TTF Gas 18.6%, Corn 22%, Wheat 5.4%, AUD/EUR 3%, AEX 2.8%, CAC 1.7%, DAX 1.6%, MIB 2%, KOSPI 2%, Nasdaq 100 4.7%, Nikkei 2.2%, Sensex 3%, Oslo 2%, Copenhagen 3.3%, Helsinki 2%, Stockholm 5.1%, Russell 2000 2.4%, SMI 2.3%, SOX 6.5%, SPX 2%, ASX 200 2.1%, Biotech Index 5.4%, Nasdaq Composite 4.6%.

The group of decliners included;

Australian Coal (12.5%), Baltic Dry Index (6.6%), China Coal (2.5%), WTI Crude (3.4%), Gasoil (7.6%), Gold (3.3%), Copper (2.3%), Heating Oil (6.8%), Coffee (1.9%), Tin (3.5%), Orange Juice (3.2%), Gasoline (6.5%), Silver (2.2%), Cotton (2.6%), Brent Crude (3.9%), Uranium (2.8%), Silver AUD (3.3%), Silver USD (2.8%), Gold AUD (4.2%), Gold USD (3.8%), Oats (2.4%0 and EUR/USD (2.4%).

July 10, 2022

by Rob Zdravevski

rob@karriasset.com.au  

What if the lows are already in?

The lows in some stocks may have been seen in late April and throughout May 2022.

In early to mid June, I wrote about Buy signals appearing in various equity indices.

And while, ‘double dips’ and re-test of recent lows is more than possible……

I’ve always had a tendency to being early, rather than late.

The latter is similar to chasing a bus after it has left the stop.

If that happens, don’t move ‘heaven and earth’ to catch up to it at the next couple stops.

Just wait for the next bus.

Although by being early, you can start to think that the bus isn’t coming or perhaps it ran early and left before you got to the bus stop or worse, the service has been cancelled.

When it comes to some markets, the S&P 500 is now 7% above its June 13th, 2022 intraday low while the Nasdaq biotechnology index has risen 21% since that same week.

Stocks such as Wesfarmers, Amazon and James Hardie have risen 12%, 16% and 23% respectively from their June 13th lows.

July 8, 2022

by Rob Zdravevski

rob@karriasset.com.au

Copper mean reversion is complete

Copper completed a mean reversion I have been calling for the past 8 months.

It spent the majority of that time meandering around $4.50 and from a recent high of $5.00, it has fallen to my target price of $3.42 to satisfy my trifecta of a mean reversion to its 200 week moving average, registering a weekly oversold reading on its weekly RSI and trading to 2.5 standard deviations below its weekly mean.

As written in this weeks ‘Macro Extreme’s’ post, it is now giving us a Buy signal.

Although, markets and prices remain wicked and daily trading is not for the faint-hearted.

For example, in only the past 2 days, from $3.42, Copper traded down 4% to a low of $3.28 and reversed higher some 9% up to $3.58, to now be trading down 2% below that level at $3.53, at the time of writing.

Daily noise and headfakes can be dangerous.

Remember all that hubbub about copper shortages and electrifying the world including transportation?

Albeit that theme has legs and remains intact, investors can overpay for an asset, security or theme steeped in momentum and swallowed by the herds instincts, especially when euphoria is on the rise or near its peak.

See lithium, nickel, natural gas, tech stocks, aluminium, wheat, buy-now-pay-later IPO’s, etc etc.

July 8, 2022

by Rob Zdravevski

rob@karriasset.com.au

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