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Macro Extremes (week ending November 19, 2021)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

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

Gold in AUD and USD

Rice

Overbought (RSI > 70)

Australian 5 year government bond yields

New Zealand 10 year government bond yields

U.S. 2 year government bond yields

the JKM “Japan/Korea (LNG) Marker”

LNG

Coffee

Tin

Urea 

France’s CAC-40 equity index

The S&P 500 & Nasdaq 100

And Amsterdam’s AEX equity index



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

U.S. Dollar (DXY) Index

Philadelphia Semiconductor (SOX) Index

Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

GBP/USD – suggesting a weaker British Pound 



Oversold (RSI < 30)

Iron Ore



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

EUR/USD – suggesting a weaker Euro



Notes & Ideas:



An even milder week was seen in the world of commodities, currencies, commodities and debt. Volatility is subdued and we are experiencing something we may call consolidation or digestion. In some cases, there is some migration towards and test the other side of the mean.

In other news, Wheat is nearing an overbought level, the Baltic Dry Index has halved in the past 4 weeks, Turkish Banks have climbed 40% in 5 weeks (since my October 14th note) and Crude Oil has fallen 11% in 3 weeks. That peak of $85 coincided with Wall Street analysts calling for an $110 oil price. 

It pays to observe the herd, ignore the media squawk and ponder the contrarian view.

Extraordinary moves were seen in Lumber, Gas, Crude and Heating Oil, while divergence was noticed amongst declines in the U.S. transports, bankings, mid cap and small equity indices.

The larger advancers over the past week comprised of Cocoa 2.3%, the US dollar (DXY) Index 1%, JKM 8.5%, Coffee 5.2%, Lumber 28.9%, LNG 14.4%, Natural Gas 5.7%, Dutch TTF Gas 15.1%, Rice 3.2%, Rotterdam Coal 4.5%, Urea 3%, Nasdaq 100 2.3%, Philadelphia Semiconductor Index (SOX) 3.1% and Istanbul’s BIST equity index rose 5.1%. 

The group of decliners included Baltic Dry Index (9.1%), WTI Crude (6%), Gasoil (5.9%), Heating Oil (4.6%), Lean Hogs (2.8%), Orange Juice (2%), Platinum (4.9%), Gasoloine (4.3%), Silver (2.2%), Brent Crude (4.3%), China Coal (2.6%), Bitcoin (10.3%), AUDGBP (1.6%), AUDJPY (1.2%), AUDUSD (1.4%), EURGBP (1.6%), TRYUSD (12.3%), KBW Banking Index (2.7%), Dow Jones Industrial Average (1.4%), IBEX (3.6%), Bovespa (3.1%), Sensex (1.9%), Russell 2000 (2.8%), Nasdaq Transports (2.1%), FTSE 100 (1.7%) and the S&P Midcap 400 fell (1.1%).



November 21, 2021

by Rob Zdravevski

rob@karriasset.com.au  

Apple can do anything it wants to

What’s really cool is that Apple is trying to build a car and no one questions their competency. Apple can enter the world of health, money payments, computer chips, make telephones, computers and a watch. Google could too (education, virtual reality etc.) Amazon does a bunch of things beyond selling books online.

Ford will only, ever make cars. Boeing is in the business of aircraft manufacturing. Pfizer will continue to develop drugs.

Tesla’s challenge is (beyond having a better credit rating and selling more cars to justify its valuation) can it do something else’s beyond cars ?

p.s. making a charger that recharges the car battery doesn’t count. Apple also makes chargers for its laptops.

https://www.bloomberg.com/news/articles/2021-11-18/apple-accelerates-work-on-car-aims-for-fully-autonomous-vehicle?sref=qLOW1ygh

Hydrocarbon rig count still increasing

Globally, the number of active rigs deployed in the petroleum industry continues to rise.

50% more rigs are in operation from the pandemic low.

Macro Extremes (week ending November 12, 2021)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

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

U.S. Dollar (DXY) Index

Gold in AUD and USD

Russell 2000 Small Cap Index

S&P Midcap 400 Index

Dow Jones Industrial Average

Nasdaq Transports

U.K.’s FTSE 100

Overbought (RSI > 70)

Australian 5 year government bond yields

New Zealand 10 year government bond yields

U.S. 5 year government bond yields

the JKM “Japan/Korea (LNG) Marker”

Coffee

Tin

The CRB (commodities) Index

Australian Coal

Urea 

Italy’s MIB equity index

The S&P 500

And Oslo’s equity index

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

U.S. 2 year government bond yields

France’s CAC-40 equity index

Dow Jones Transports

Nasdaq 100

Philadelphia Semiconductor Index

And Instanbul’s BIST equity index 

Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

GBP/USD – suggesting a weaker British Pound 

Oversold (RSI < 30)

Iron Ore

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

None

Notes & Ideas:

The past week was the mildest in terms of volatile price swings in some months.

While the list of extreme readings narrowed as many assets meander between such as Brazil’s Bovespa no longer being oversold.

The larger advancers over the past week comprised of Baltic Dry Index 3.4%, HSCEI 3.3%, Hang Seng 1.8%, Copenhagen 3.4%, Aluminium 1.9%, Cocoa 5.3%, Copper 2.5%, Gold in USD 2.9%, Coffee 9%, Tin 2.8%, Dutch TTF Gas 2.2%, Nickel 3.2%, Orange Juice 9.7%, Platinum 5.2%, Silver 4.9%, Gold in AUD 3.5%, Corn 4.4%, Rice 4.2%, Soybeans 3.2%, West 6.6%, Uranium 5.8% and Urea 2%

The group of decliners included Gasoil (3.1%), Heating Oil (2.1%), Lumber (6.1%), Natural Gas (13.1%), Rotterdam Coal (6.2%) and China Coal (4.5%)

November 14, 2021

by Rob Zdravevski

rob@karriasset.com.au  

Perilously Poised

It’s been quite some time since I’ve seen a bunch of my indicators all poised on the verge of suggesting a decline in equities, commodities, their sympathetic currencies (the AUD & CAD) and government bond yields.

The relevant word is ‘poised’. A few prices need to hold, alternatively…..if not……prices move to test recent lows and it will be telling if they make ‘lower lows’.

While my focus within client portfolios remains on individual companies, their metrics, valuations and prospects……

there seems to be a ‘growing’ consensus (how’s that for tautology?) that equity markets may move higher resembling a ‘melt-up’.

My instincts may have agreed with this consensus but I need to honour mathematics instead, which are signalling weakness.

It’s also wise to keep in mind that the herd often walks into a trap.

I think a bet on a melt-up is a poorly laid wager in terms of probability and risk versus reward.

More so, as my indicators are marrying up to various ‘extremes’ including the percentage which the S&P 500 is trading above its 200 week moving average. This extreme hasn’t been seen for more than 20 years.

This is not a call for a crash. I don’t spend time on that type of stuff.

I’m raising more cash, protecting capital and putting on some hedges.

My message for fully invested, diversified ‘index huggers, is to at least consider that the ‘fat part of the trade’ may have been had.

or put it another, what risk are you taking to squeeze out an extra 10% of index return?

November 8, 2021

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending November 5, 2021)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

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

Australian 2, 5 & 10 year government bond yields

Spanish, Greek & Italian 10’s

Dow Jones Industrial Average

S&P Midcap 400 Index

Russell 2000 Small Cap Index

Nasdaq Transports



Overbought (RSI > 70)

WTI Crude Oil (the March 2022 contract)

Gasoil

the JKM “Japan/Korea (LNG) Marker”

Natural Gas

Australian coal

Urea

Cattle

Amsterdam’s AEX equity index

Dow Jones Transports index

And the USD/TRY (setting a new all-time low in a weakening Turkish Lira) 



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

France’s CAC-40 equity index

Dow Jones Transports

Italy’s MIB equity index

Nasdaq 100

Oslo Bors equity index

Philadelphia Semiconductor Index

S&P 500

And Instanbul’s BIST equity index 

Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

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

GBP/USD – suggesting a weaker British Pound 

Rice

Oversold (RSI < 30)

Iron Ore



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

None

Notes & Ideas:

The two notable asset class moves this week were dominated by the reversal in bond yields which saw them fall sharply (meaning the buying of bonds was quite aggressive) along with a host of +2% advances amongst various equity indices. 

In fact, the decline in government yields isn’t a surprise. Past editions of ‘Extremes’ contained examples of where the Aussie 10’s moved from 1.77% to 1.95%. In this past week, they retraced the previous week’s move, to close back at 1.74%.

The yield in the Aussie 5’s fell from 1.46% to 1.27% .

It was actually uncanny that yields seemed to fall 20 basis points in many countries irrespective of their actual yield percentage.

However, countries who have recently raised rates where the interesting exceptions. New Zealand saw their 10’s only decline from 2.60% to 2.55%, Norway fell from 1.70% to 1.56% while Poland’s 10’s rose from 2.88% to 2.91%.

In last week’s edition, I highlighted the contrast in Greek 10 year bonds which were yielding 1.33%. 

I find it interesting that this yield seems to imply a similar risk/return to the U.S 10’s yield of 1.45%. Does that make Italian, Spanish and Portuguese 10 year government bond yields more creditworthy than the United States?  They yield 0.88%, 0.41% & 0.33% respectively.

And when compared to the aforementioned Norway, it’s equally difficult to reconcile their pricing.

Incidentally, the investors fancied Greek 10 year bonds, seeing its yield firm from 1.33% to 1.09% this week.

In other happenings, the Baltic Dry Index continues its mean reversion (the cost of bulk shipping) falling 23%, making for a 64% decline in 4 weeks.

Aluminium fell 5.4% giving it a 18% decline in the past 3 weeks and Chinese Coal prices have sunk 26% over the same time.

On the topic of mean reversion, many assets/securities/commodities continue their decline or meander lower, especially as some revert from euphoric media emphasising peaks.

Last week, I wrote that I was watching the AUD/USD test 0.7520. Alas, it didn’t break that level and we now see it at 0.7399.   

The larger advancers over the past week comprised of JKM LNG 5.4%, Lumber 4.3%, Iron Ore 2.3%, Cattle 2%, Sugar 3.5%, Gold (in AUD) 3.6%, Gold (in USD) 2%, Rotterdam Coal 3.7%, Dutch TTF Gas 14.1%, Urea 6.6%, CAC 40 3.1%, DAX 2.3%, DJ Transports 5.9%, FTSE MIB 3.4%, Midcap 400 4%, Nikkei 2.5%, Oslo 3.3%, Helsinki 2.2%, Russell 2000 6.1%, SOX 8.9%, S&P 500 2%, Taiwan TAEIX 1.9%, Nasdaq Transports 2.4%, ASX 200 1.8% and Istanbul 5.7%.

The group of decliners included Aluminium (5.9%), Baltic Dry Index (23%), Cocoa (5.8%), WTI Crude (2.8%), Nickel (2%), Orange Juice (3.8%), Gasoline (2.1%), Corn (2.7%), Soybean (3.5%), China Coal (5.7%), Uranium (7.7%) and the Hang Seng Index fell 2%.



November 7, 2021

by Rob Zdravevski

rob@karriasset.com.au  

Picking up pennies in front of a steamroller

In a business of billions, it can be a game of pennies.

Last week, Brent Crude failed making a higher high’ (breaking its October 2018 peak) by 3 cents.

Last week’s peak also coincided with other overbought readings which I list in my weekend ‘Macro Extremes’ post.

Brent needs to hold $64.76 in order to not make a ‘lower low’ in a near timeline.

Brent’s 200 week moving average is $62. The gravitational pull of mean reversion should be honoured.

My bias is for lower oil (and other energy) prices, at least towards the $66 mark and we’ll assess the next move later.

November 5, 2021

by Rob Zdravevski

rob@karriasset.com.au

#brent

#oil

#crude

The importance of Limit Orders

Here is an example in the peril of placing ‘market orders’…..

especially at the open of the trading day or following a substantial announcement or event.

Overnight, Google announces a $1 billion equity investment in nonvoting convertible preferred CME Group stock.

As the 15 minute intraday chart below illustrates, CME closed the previous days trading at $220.

The news was announced after the close.

The next day, trading in CME common stock opens at $230, which is 4.5% higher from the previous days closing price…….to only see it steadily decline through the day and close at the same price as it did yesterday.

I’m quite sure there were many people who entered a ‘market order’ to find out they paid 4.5% more than yesterdays price without understanding that this could actually happen.

I hope the stock goes up (for their sake) and hope that it doesn’t fall further, but after all hope is not a strategy.

November 5, 2021

by Rob Zdravevski

rob@karriasset.com.au