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
EUR/GBP
Dow Jones Industrial Average
Copenhagen’s OMX 25 Index
Philadelphia Semiconductor (SOX) Index
Singapore’s Strait Times Index
Nasdaq Transports Index
Overbought (RSI > 70)
Australian 2, 3, 5 & 10 year government bond yields
TBT & TBX
U.S. Dollar (DXY) Index
USD/JPY
The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)
U.S. 2, 5 & 10 year government bond yields
British, Canadian, Swiss, Spanish, French, Greek, Italian & Japanese 10 year government bond year yields
German 2, 5 & 10 year government bond yields
Extremes “below” the Mean (at least 2.5 standard deviations)
Copper/Gold Ratio
Oversold (RSI < 30)
CAD/USD
JPY/USD
KRW/USD
GBP/USD
IDR/USD
TLT & IEF
The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)
US 10 year minus Australia 10 year government bond yields
Bitcoin and GBTC
Amsterdam’s AEX
S&P Midcap 400
Russell 2000
SMI
S&P 500
ASX 200
Toronto’s TSX
KOSPI
And the S&P 500 Small Cap 600
Notes & Ideas:
This week’s biggest news was seeing government bond yields register my Overbought Quinella of registering a weekly RSI above 70 and trading to 2.5 standard deviations above its weekly mean.
The Japanese 10 year yield surged into what seems like a crescendo of 0.45%. It settled the week at 0.40%.
In fact, we saw many surges intra-week in bond yields. The U.S. 10 year touched a high of 3.50% to then close the week at 3.23%.
A more notable observation in this bond yield surge is that the listed bond ETF’s which represent the long and short of the bond market (they carry the codes of IEF, TLT, TBT and TBX respectively) traded to Monthly Quinella’s of extremes.
Another group in that category, but on the Oversold side of the ‘extremes’ are a host of equity indices.
BUT, can you believe in a week of carnage amongst equites, the Nasdaq 100 rose 1.2% for the week. Incidentally, the Nasdaq Composite fell 4.7%.
Is there some support and strength in the ‘leaders’?
We also saw outside bearish reversal weeks from assets and securities such as the Bloomberg Commodities Index and WTI Crude Oil. These are some of the names which were Overbought over the past couple weeks.
In price action news, I expect Lean Hogs to trade up to $120 and the S&P Midcap 400 closed on its weekly lows, unlike the U.S. 10 year bond yield.
(i.e. Monday may offer a good opportunity to get set)
The U.S. biotech index closed up 0.06%. Perhaps some rotational resilience for a bludgeoned sector.
And finally, Energy isn’t overbought anymore as Oil and Natural Gas tanked following weeks being Overbought.
Natural Gas has fallen 27% since my “Sell” call 11 days ago at $9.50, where I called it the ‘mother of all peaks’.
Carrying today’s writing theme of the Trifecta of where prices are seeing a Weekly Oversold reading, touching its 200 week moving average and trading at 2.5 standard deviations below its rolling weekly mean……..
the chart below shows circles where South Korea’s Kospi has done so and bodes well as moments to accumulate, should your investment time horizon be longer than 8 minutes.
Although, this is hardly surprising given that its largest company by market capitalisation is also sending the same signals following its 26% decline over the past 52 weeks.
The ‘window’ to sell can see seen at the opposite end of the pendulum.
This week, we are in an accumulating ‘window’.
And, the South Korean Won is at a 13 year low, making their products much more competitive.
I can’t imagine the United States imposing any onerous import tariffs to combat this, either.
Especially following President Biden’s trade and security visit to South Korea only last month, in May 2022
The trifecta of a Weekly Oversold reading, touching its 200 week moving average and trading at 2.5 standard deviations below its rolling weekly mean…….is near.
A 1% decline in the ASX 200 down to the 6,655 level would see these indicators align.
This is not an exercise of calling an exact low….Jeez !
It’s an illustration to suggest that the probability of a trough is close by.
Whilst this comment is about the whole index, as a stockpicker I think the ‘internals’ of the ASX 200 will see a rotation of monies from commodity related stocks into the unloved stocks within the retail, banking and building materials sectors.
Other markets are now venturing towards their lower ‘extreme’.
Switzerland’s SMI equities index is doing that now.
Today’s trading at 10,448 renders it (on a weekly basis) Oversold, touching its 200 week moving average and trading at 2.5 standard deviations below its rolling weekly mean.
Making it more attractive is that the Swissie is trading at the lower end of of its multi-year range.
I’m posturing towards being a buyer, rather than a seller.
Last August and December of 2021 was when you the contemplation of selling should’ve taken place.
The Gold to Oil ratio is at its lowest since November 2014.
That aside, whenever this ratio falls (especially below its long term average) the S&P 500 rises.
It tells us the health of the economy is OK.
Whenever it rises, the S&P 500 is stifled and often declines.
Today, there is anomaly.
The debate I’ll work through in figuring out this distortion is…..we have higher oil prices which may not be due to more demand, but rather less supply and gold isn’t acting in a historical manner when inflation appears.
And then, on the healthy part of the economy side of the ledger, we continue to see solid and rising S&P 500 consensus earnings estimates.
There are pockets in equities markets where stocks are making ‘rare’ and extremes moves.
Often these downdrafts coincide with ‘weaker hands’ throwing away their shares (at the wrong time) which is also when price declines are exacerbated by machines and money managers playing a short game of protecting their bonuses.
The example below, shows ANZ Bank (ANZ.ASX) and Wesfarmers (WES.ASX) both trading to 3 standard deviations and reaching Oversold levels on a Weekly basis.
Over many years, this simultaneous event doesn’t happen too often.
At these moments, it has been my experience when professional investors look to accumulate rather than sell.
In other words, observe where the pendulum’s arc is.
I’m expecting a rotation of monies into such opportunities and occurrences.
the chart below shows the S&P 500 is trading only 8% above its 200 weekly moving average.
So, the thinking goes, a move of 8% lower to the 3,503 region satisfies a mean reversion to the 200 week moving average and also has it ‘double dipping’ into oversold territory.
I’m reposting an updated chart with annotations showing the percentage that the Nasdaq 100 is trading below its 200 day moving average.
The Nasdaq 100 registering its largest ‘discount’ to its 200 day moving average in more than 10 years, is telling you that it is more so in buying range than selling time.
What is missing is that it isn’t yet oversold on a daily basis, let alone weekly.
In older posts I have referred to a decline in the FAANGM stocks as the ones which will help the broader index price move lower towards its 200 week moving average and an Oversold reading.
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