Macro Extremes (week ending October 8, 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)

USD/JPY (telling us of a strong USD and a weaker Yen)

It’s the weakest since early 2019.

So sell USD and Buy JPY and use it to buy cheap Japanese equities.

Overbought (RSI > 70)

Hot Rolled Coil Steel (for the 54th consecutive week)

Aluminium

Australian coal

and India’s Sensex & NIFTY 50 equity indices



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

U.K. 10 year government bond yields (Gilts)

U.S. 2 year and 5 year govn’t bond yields 

Korean 10’s

The Bloomberg Commodity Index

The CRB Index

The Baltic Dry Index

WTI and Brent Crude

Gasoil

Heating Oil

Natural Gas

the JKM “Japan/Korea (LNG) Marker”

Coal, Rotterdam delivery (it was up 22% early in the week)

Russia’s MOEX 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)

South Korea’s KOSPI equity index

EUR/GBP – telling us the Euro is weaker and we have a strong British Pound, so sell your GBP and Buy EUR (there are some bargains amongst European equities) 



Oversold (RSI < 30)

None



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

None



Notes & Ideas:

Most of the price action continues in the bond market (with some markets seeing yields hitting some extremes) while many commodities continue to post weekly moves of greater than 2% over this past week.

In the past weeks bond yields have been rising.

Over the past 8 weeks, Australian 10’s have risen from 1.07% to 1.67%. This week alone, they’ve risen from 1.49%.

U.S. 10’s moved from 1.13% to 1.62%. In the past week, they stretched from 1.47%.

French 10 years from -0.15% to + 0.12%.

U.K. 10’s have doubled from 0.52% to 1.15%. We’ve seen them extend from last weeks 1.06%.

While over the past week alone, Korean 10’s moved from 2.26% to 2.38%. Canada’s equivalent went from 1.47% to 1.63% and German Bunds rose from a negative 0.23% to (0.15%).

My call for a peak and an interim ‘head-fake’ in rising yields stands. Interest Rates will rise but for now the surge needs a break. Furthermore, the U.S. 10 year minus 2 year yield ‘spread’ has hit a resisting trendline.

The larger advancers over the past week comprised of Baltic Dry Index (shipping) 6.2% (adding to last week’s 12% rise), WTI & Brent Crude 4.3%, Gasoil 6.4%, Copper 2%, Heating Oil 3.8%, JKM 3% (peaked at +12%), Cattle 4.3%, Lumber 15% (I’ll remind readers of my bottom call), Platinum 5.6%, Gasoline 5.1%, CRB Index 2.2%, Australian Coal 3.2%, KBW Banking Index 2.3%, MOEX 4.3%, Nifty 50 & Sensex 2.2%, Singapore’s Strait Times 2%, Dow Jones Transports 2.7%, Nasdaq Transports 1.8% & Australia’s ASX 200 1.9%.

The group of decliners included Lean Hogs (2.2%), Hot Rolled Coil Steel (2%), Orange Juice (3.9%), Corn (2%), Wheat (2.8%), Dutch (Euro) Gas (6.4%) peaked at +45% during the week, KOSPI (2.1%) and Nickel fell 2.5%.

In last week’s edition I wrote……..and I remind readers;

A rise in the U.S. Dollar has generally resulted in weaker commodity prices. Gold in AUD continues to hold a A$2,312 support level.

But I continue to watch and think that recent rise in interest rates will be a head-fake and lead to a reversal lower. The next resistance in U.S. 10’s is 1.62%. 

Higher U.S. interest rates means a rising AUD. If 10’s hit resistance and reverse lower, the lower AUD and weaker commodities trade is back on.

In other notes, the FTSE 100 (7,096) is closer to a breakout and is Italy’s MIB Index (26,051), with my bet being for lower prices.



October 10, 2021

by Rob Zdravevski

rob@karriasset.com.au  

How The World Works – edition # 1

A cryptic pondering of how things may go down. 

Winter in Europe is approaching,

Russia has a lot of gas,

Europe doesn’t have enough gas,

European gas prices have quadrupled in a month,

The Nord Stream 2 gas pipeline is not commissioned,

The pipeline runs from Russia 🇷🇺 into Germany 🇩🇪 via the Baltic Sea,

It has been completed but it hasn’t been turned on yet,

Germany has until January 8th to certify Nord Stream 2,

Merkel is no longer chancellor of Germany,

The new chancellor hasn’t been confirmed,

In the meantime, Russia has started filling the pipeline for inventory and pressure,

The pipeline is owned by Gazprom,

although Gazprom is listed, the Russian Federation owns 51% of Gazprom,

Equities in Russia (Gazprom) oil and gas companies have tripled.

Russia accounts for one-third of world’s natural gas reserves,

Russia provides more than one-third of Europe’s gas supply,

Ukraine and USA have opposed Nord Stream,

as it will increase Europe’s reliance on Russian energy.

The West has been imposing sanctions on Russia,

Putin says he is willing to help Europe with supply,

America (Blinken) says Russia shouldn’t use energy supply as a ‘weapon’, 

Russia smirks as renewables aren’t exactly doing it for Europe yet.

Doesn’t Norway have gas?

Norway’s Equinor is Europe’s 2nd largest gas supplier after Gazprom,

they will increase more supply.

So Putin offers immediate gas transported through Ukraine,

Ukraine and Biden (USA) are friends,

Biden could be friendly to Russia by ‘allowing’ gas to run through Ukraine,

Russia then asks for sanctions to ease as a trade off,

Ukraine gets to earn money in transit fees,

Europe receives gas quickly, 

Gas prices fall, easing rising consumer costs,

The U.S. will be nicer to Russia,

because while he was at Columbia Law School, 

Secretary of State, Antony Blinken wrote a book in 1987,

Which suggest being friendly and engaging Russia rather than defeating them, 

And this gives us a clue to his potential diplomacy plan,

The book “Ally versus Ally: America, Europe, and the Siberian Pipeline Crisis (1987)” argued, U.S. policy toward the Soviet Union was less important than U.S. policy toward its European allies.

The cat and mouse game is….

Petro Nations need Petro Dollars

Supply will be provided, at a cost…..

And not just selling at higher prices,

But a request for quicker commissioning of NordStream 2

and request lifting of sanctions against Russia.

and the trade is…….

Short gas prices,

sell your other oil and gas equities,

hold your Gazprom shares (for the moment),

And buy uranium related investments.

October 7, 2021

by Rob Zdravevski

rob@karriasset.com.au

Nothing natural about the moves in natural gas

Natural Gas prices in Europe have risen 7 fold in the past 7 months.

Bitcoin hasn’t done that……just saying!

#oldschool

On a more serious note, beware of parabolic price moves.

Watch but don’t play.

If you own gas which you can deliver into Rotterdam……sell it.

It’s a sellers market.

This price should halve, quick smart.

October 7, 2021

by Rob Zdravevski

rob@karriasset.com.au

Watching correlations

Yesterday I posted charts showing the correlation between the

a) AUDJPY vs U.S. 10 year bond yield

and b) AUDJPY vs the CRB (commodities) Index

Today (below) you can see how a) Copper vs AUSUSD

and b) Copper vs the U.S. 10 bond yield are ‘tracking’ each other.

September 7, 2021

by Rob Zdravevski

rob@karriasset.com.au

A bearish reversal day for energy

What a difference a day makes, although one day doesn’t make a trend.

Overnight WTI Crude, Brent Crude, Heating Oil, Gasoline all fell 2%. Natural Gas fell 10%.

What is more important is last night’s trading session produced a bearish outside reversal day in all of mentioned commodities. This is where prices traded outside the previous day’s range, meaning today’s high and low was higher and lower than yesterdays range and the closing price was below yesterdays. It’s a bit more bearish because today’s close was lower than yesterday’s intra-day low.

September 7, 2021

by Rob Zdravevski

rob@karriasset.com.au

Interim peak in Heating Oil

At the close of trading on Tuesday October 5, 2021, much of the energy complex was overbought and extended on many measures.

As much as I try to call tops, bottoms and pivot prices, probability suggests that one shouldn’t ‘go long’ with new money and new positions amongst the energy commodities at current prices.

So, with that my view on Natural Gas, Crude Oil, Gasoline, Gasoil & Heating Oil is that they are reaching a trading peak and selling is more prudent than buying.

The latter (Heating Oil) appears in the chart below.

October 6, 2021

by Rob Zdravevski

rob@karriasset.com.au

Copper & the Nasdaq

And Copper needs to initially hold $4.07 over the next couple days and more so, $4.02.

A break below $4.02 means it has recently made a lower high and lower low.

Then we can expect to see the following move lower;
the AUDJPY (a weaker AUD), the CRB Index, Oil and U.S. 10 year bond yields.

This will make down-trodden technology stocks attractive.

For now the U.S 10 year bond is 1.55% and I expect a spurt to 1.58% in the next 2 days.

In turn we should see a couple more down-days in equities and a Nasdaq 100 touching 14,325 (another 2.8% lower from today’ close) would satisfy a 50% retracement of the 21% rally which commence May 12, 2021.

but remember to watch Copper….

October 6, 2021
by Rob Zdravevski
rob@karriasset.com.au

Make a call, Take a position

Do you know how you see price charts after the move has already happened. Financial media journalists are particularly good at that.

I remain critical of them because I just wish they would publicly make a call, form a view or take a position rather than always reporting things after the fact and acting as if they predicted it.

Below is my April 30, 2021 call that Natural Gas prices were on the verge of the ‘mother of all breakouts’.

Upon breaking above $3.03 mentioned in the article, they are now $6.25.
Part of the position was sold at $4.07.
It’s now time to sell the rest.

October 6, 2021
by Rob Zdravevski
rob@karriasset.com.au

Comparing Commodities to the AUDJPY

And then we can watch if the CRB (commodities) Index follows the AUDJPY (orange line) as well.

October 6, 2021
by Rob Zdravevski
rob@karriasset.com.au

Correlations abound

I’m watching the AUSJPY currency cross. It’s one of my favourites.

It’s at an acute point.

Let’s see which direction the AUDJPY (orange line) moves and see the U.S. 10 year bond yield follow it.

October 6, 2021
by Rob Zdravevski
rob@karriasset.com.au

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