rob zdravevski's blog

Oil’s stealthy rise (and still going)

Today, commentators are rejoicing that Brent has returned to its January 27th, 2020 “pre-pandemic” price,

and that Brent has nearly tripled from its April 22, 2020 intra-day $16 low. (p.s. the Russian / Saudi stoush broke on March 6th, 2020)

but I think it continues its march higher.

In the past week, Brent rose 8.3%, 

thus I’m revising and lowering the probability of a mean reversion to the $49 region (note: it remains probable, but less so in the near-term),

although I’m not a buyer of Brent Crude at these levels (for my risk-reward mathematics have changed),

I remain a long-term oil bull (based on my declining supply/capex thesis),

so keep in context that any decline remains one within a rising long-term trend, 

while my price action and trend analysis suggests a price of $70 is plausible in relatively short order,

a price of $84 would be where I’ll highlight an important peak.

Incidentally, this week we’ll see the U.S. CPI monthly release and more relevantly, next week’s PPI figures are announced for January 2021 will help tell us if rising oil prices have worked their way into the inflation figures.

February 9, 2021

by Rob Zdravevski

rob@karriasset.com.au

Chasing Waterfalls

Measured investment professionals invariably know when “not to be in something”.

This means that we see parabolic moves often but equally don’t participate in any gains.

Devoid of commentary about fundamentals, we also don’t have our “faces ripped off” during the decline.

Aggressive wording perhaps, but I fear stories are yet to emerge of bored, young men (they are most susceptible to addiction) sitting at home, armed with a trading app, using leverage, not quantifying risk or not sizing their bet appropriately, are now staring at a 80% loss in GameStop.

It’s $90 today. Many bought stocks days go at $470. 😩

February 3, 2021
by Rob Zdravevski
rob@karriasset.com.au

Certain things happen at the end of the party

The combination of ‘unnatural’ participants in selected stocks or assets with prices which double, treble and then halve (and more) is not seen at the beginning of an overall bullish move.

Is it ?

Stretched on a Daily basis too

The SPX vs AUDJPY spread – Part 2

This daily illustration has narrowed the time frame to the past 3 years and my annotations shows us when the S&P 500 (indexed to 100) is trading at a ‘stretch’ versus the AUD/JPY (a favourite currency risk indicator).

Today, this spread (of the S&P 500 over AUD/JPY) is at its highest in a few years. Readings above 38% portend a notable decline in the equity index.

February 1, 2021

by Rob Zdravevski

rob@karriasset.com.au

Is risk at a stretch?

The SPX vs AUDJPY spread – Part 1

Here is a story when the S&P 500 changed its risk profile.

Half way through 2013, the S&P 500 decided it would no longer honour, let alone couple with its old ‘risk’ companion…..the AUD/JPY currency cross.

So what gives?

Does the S&P 500 need to fall sharply in order to ‘re-couple’ ?

Well, there isn’t any rule which suggests so.

I’m merely pointing out an extreme.

Equally, it seems unlikely the AUD would strengthen against the Yen, for if equities declined notably, the safe-haven Yen would be bought and the risk ‘associated’ AUD would be sold.

So, there goes your spread trade theory.

Let the dance continue for now, but the multi-year bet is for equity risk premia to converge.

More on the near-term picture in a moment.

February 1, 2021

by Rob Zdravevski

rob@karriasset.com.au

No Diving – (Pool)back is Shallow

While many of my indicators are either confirming (or near doing so) a turn lower in many asset prices…..ranging from Copper, Soybeans, Wheat, Corn, Coffee, Australian Dollar (vs USD & JPY) and the S&P 500.

except for Gold (in AUD), Pork (Lean Hogs) and Lumber…..the latter has risen 40% again, over the past 2 weeks.

Albeit I have already positioned portfolios for a decline (by moving to 35% cash and additional index and specific stock put option hedges)……

rather than speculating on the myopic business of ‘shorting’, my guidance is to prepare acquiring securities in sectors which will present attractive risk/reward opportunities.

Some industries to watch include Oil, Gas and Insurance, to name a few.

I’m re-iterating to clients that I am not lacking investment ideas. It’s more of a function of which ones to exclude.

I expect this pullback in equities to be shallow.

Spain’s IBEX and the U.K.’s FTSE 100 have already declined 8% from their January 10th high (a date which coincided with my “Cashing In Your Chips” note.

January 30, 2021

by Rob Zdravevski

rob@karriasset.com.au

Lumber and its 2nd and 3rd derivative effects

Lumber has once again taken a dive, only after it recorded a second effort of doubling its price in a short order of time.

In fact, the price action in Lumber has been one of scarcity, distortion, speculation and extremes.

The rise in price has mainly been driven by a surge in homebuilding and renovation demand and a shortage of by-products such as plywood coupled with a major disruption in supply chains.

The sudden declines are a function of speculative excesses being corrected by a simple, honoured notion of mean reversion, which is quite a reliable pricing tool in commodity markets.

Who is affected by these gyrations?

Building product manufacturers, the forestry industry, timber merchants, the carbon sequestration industry, homebuilders, consumers and kitchen cabinet makers, to name several.

January 18, 2021

by Rob Zdravevski

rob@karriasset.com.au

Gold should march to a different beat

As I call for a near-term decline in the AUD versus the USD, we should see correlated (sympathetic) performance across commodities prices, by which I mean in energy, agricultural (softs) and industrial metals but I don’t expect that to be the case for precious metals.

Especially for Gold.

The chart below shows 2 periods over the past year where the USD Gold price (in blue) has not moved in its ‘expected’ synchronicity with the (denoted in orange) AUD/USD currency rate.

Clients will be receiving specific commentary overnight.

January 17, 2021
by Rob Zdravevski
rob@karriasset.com.au

Cashing In Some Chips

January 10, 2021

I’m moving portfolios to at least 35% cash and hedging some positions. Other may call it insurance or protection.

I say this with nearly 3 decades of experience which includes studying market and investor behaviour along with some pattern recognition and statistical analysis………

combined with observing unquantifiable occurrences (such as a capital raising and IPO frenzy)……..

and various indicators (amongst currencies, bond, equity and commodities) are aiding my stance and highlighting notable extremes (and peaks) in certain markets and specific assets/securities……

which help me come to a conclusion that I am not going to stick around for the last 10% of this market.

Some of those observations include;

the S&P 500 index is trading at 34% above its weekly moving average (MA)

the only other times when this metric was higher occurred in October 1987, July 1998 (coinciding with the demise of LTCM and the Russian financial crisis) and March of 2000. (funnily, a 14%-18% decline back to its 50MA is only back to the October 30th mark);

the CBOE Put/Call Ratio is at 0.44, which indicates call buyers are outweighing put option buyers notably;

88% of NYSE stocks are trading above their 200 day moving averages (only seen 3 times in the past 20 years);

the amount of Net Long Commodities futures and options contracts (2.3 million of them) are at their highest since January 2011. (take a look at your CRB and Bloomberg Commodity Indices around the first quarter of 2011)

Equally, the CRB Index is trading at its most overbought levels since April 2014.;

In fact, bullish bets on Corn are at their highest in 10 years. This coincides with my recent note about Corn (and soybeans) being extremely overbought. A reversal in the corn prices makes inputs cheaper for Kellogg…..

Parabolic price action in Bitcoin and Tesla now has those assets trading at 172% and 151% above their 200 day moving averages. (we’ll be looking to buy some Put Options in specific tech stocks);

The AUD/USD is the most overbought (on a weekly basis) since September 2017 when it was then trading at 0.8050, while the AUD/JPY hit a similar measure not seen since December 2016;

While all of this is going on, Gold has spent time digesting and has now traded back to its 200 day moving average.  ❤️

I’m much more interested in Gold (US$1,847) and gold equities today.

Brent Crude has spent a few weeks tickling 3 (not 2) standard deviations above its mean and should come back from $56 to $47;

If you thinking about Short Government Bond Yields……beware, it could be a trap;

This is not a wholesale call to exit assets because we all have our certain stocks and special situations to own and reasons for them.

In fact, I anticipation deploying some capital into more defensive and staple orientated businesses…….

but as far a broad, macro market call……this is my current position.

Clients will receive separate and specific advice to consider actioning……

In the meantime, keep in mind there are times to heighten your awareness towards managing your portfolio, exposure and risk……….

this is one of those moments.
 

Until next time,

Warm Regards,

Rob Zdravevski

rob@karriasset.com.au