Understanding risk/adjusted – Australian Banks

Indeed, there are times when to sell Australian bank shares.

This study below shows moments when the stock price in Commonwealth Bank of Australia (CBA) was stretched.

Ignoring such signals means investors are leaving money ‘at risk’ when probability suggests valuations are full or lower prices beckon.

Irrespective that Australian banks have always traded at a premium to their global peers, resting on the mantra that ‘you can’t go wrong owning the banks’ is false.

And finding solace, that ‘at least I’m receiving my dividends’ is not addressing the risk being taken for such a return.

CBA”s stock price is now trading at the same price as March 2015 (that’s 8 years ago) while Westpac is trading at the same price as 2008, 2010 and 2012.

March 23, 2023

by Rob Zdravevski


Watching for ASX 200 buying moment

The ASX 200 is not yet in ‘buying’ territory although it may arrive soon.

Amongst my other empirical and correlation work, here is a study of the AUD/JPY versus the ASX 200.

Clients will receive the prompt when to action a shift in asset allocation.

Interested parties, individuals, family offices, pension funds and others are welcome to make contact and inquire about my investment advisory services.

March 21, 2023

by Rob Zdravevski

Karri Asset Advisors


S&P 500 – ‘caught in a trap’

Here is my S&P 500 picture.

‘The market’ needs to either make a higher high or a lower low.

p.s. It has been range bound for the past year and today’s price is the same as 2 years ago.

This newsletter summarised my October – December 2021 calls to lighten equity exposure and raise cash.


“Time in the market” doesn’t work when there isn’t a bullish secular trend supported by tailwinds.

Put another way, over allocation to equities over the past year or so meant investors were placing too much money, at actual risk.

I think finding adequate investment returns over the coming years will take more work and study than simply buying an index ETF ‘at market’.

March 21, 2023

by Rob Zdravevski


Macro Extremes (week ending March 17, 2023)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities.

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)

U.S. 10 year minus U.S. 2 year yield spread


Overbought (RSI > 70)

Hot Rolled Coil Steel (HRC)

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

Gold (in AUD and CAD)

Gold Volatility Index

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

U.S. 5 year yield minus U.S. 5 year breakeven inflation rate

Australian 3 and 5 year bond yields

Copper/Gold Ratio

U.S. 2 year bond yield

CRB Index



DJ Industrials

Nifty & Sensex indices

The major equity index in Norway, Swiss, Singapore, Malaysia and Thailand




Oversold (RSI < 30)

Urea (U.S. Gulf) 

Urea (Middle East)

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

KBW Banking Index

Notes & Ideas:

In as the previous week in Equities, I am pasting the same opening paragraph as last week.

They were weak across the board led by U.S. banks, mid caps and small caps, while some holdout from the broad decline such as Taiwan only easing 0.5%.

But not all equity indices fell sharply. The Dow Jones Industrials eased 0.2% as did the CSI 300. Amongst U.S. banking liquidity concerns, the KOSPI, Shanghai Composite and Hang Seng rose 0.1%, 0.6% and 1%, respectively. 

In fact, it may seem perverse that the S&P 500 rose 1.4% on the week, while the Nasdaq composite soared 5.8% for the week. But it isn’t too strange when you consider that collapsing yields gives the stock prices of technology companies tailwinds.

So much so, that the Nasdaq 100 and Philly Semiconductor Index had a bullish outside reversal week.

In the previous week, the Nasdaq Biotech Index revisited an oversold extreme. This past week, it rose 2.2%.

And finally, Helsinki mean reverted to its 200 week moving average.

Amongst bonds, yields continued to fall, heavily.

Although, there were a few which fell to a lesser degree and closed nearer to the middle of the week’s range.

The most dramatic observation is that the U.S. 10 year minus 2 year bond spread (yield curve) moved from a ‘negative’ 2.5 standard deviation to a ‘positive’ 2.5 standard deviation reading within 1 week.

Closest similar observation and occurrence was on February 24, 2020 and then on May 27, 2019.

The other way occurred on August 7, 2000.

On a yield basis, this spread moved from (1.08%) to (0.33%), closing at (0.43%).In the pre ious week, the media was making a hoo-ha about the yield curve being the most negative in decades.

Keep in mind, such extremes don’t stay as so, for too long.

Meanwhile, the JGB’s experienced a massive decline yields. Shorting the JGB’s has been considered the ‘widow-maker’ trade for decades. It’s yield started from a high of 0.385% and moving down to a intra-week low of 0.167%, they closed at 0.285%. They were trading at 0.52% 2 weeks earlier. This has other implications too.

U.S. 5 year inflation break-even rate has nearly mean reverted to its 200 week moving average, telling us that inflation is easing.

While I remind myself to balance the drama and noise being distributed. The high of the U.S. 20 year bond yield was seen in late October 2022 and the recent ‘dramatic’ decline in yields didn’t break the low seen in late January 2023.

And the U.S. 30 year yield hasn’t broken below the early December 2023 low.

In commodities, the Baltic Dry Index has risen 127% in 4 weeks.

Energy continued its weakness. WTI Crude finally mean reverted to its 200 week moving average completing a big call I made a year ago.

Brent Crude is nearly at its mean reversion, while Aluminium and Lean Hogs made double dip visit to that mark.

Gold rallied some more is overbought in various currencies.

JKM LNG is closing in on my buy target although we need temper expectations of prices skyrocketing again. It’s not prudent to paint ‘shapes’ of V’s or W’s.

Grains rose across the board. Remember, in last week’s edition, I wrote that Wheat completed a mean reversion back to its 200 week moving average. It rose 4.6% this past week. 

The Copper/Gold Ratio is ‘oversold’.

And Cattle broke its 22 consecutive week overbought streak. It’s not too late to increase the percentage of your herd sales.

In currencies, don’t much was doing.

The larger advancers over the past week comprised of;

Rotterdam Coal 2.2%, Baltic Dry Index 9.6%, Lumber 8.7%, Palladium 1.8%, Silver in AUD 7.5%, Silver in USD 9.4%, Gold in AUD 4%, Gold in USD 5.9%, Gold in CAD 5.2%, Corn 2.8%, Rice 5.2%, Wheat 4.6%, HSCEI 2.6%, Nasdaq Composite 4.4%, Nasdaq Biotechs 2.2%, Nasdaq 100 5.8%, SOX 5.5% and S&P 500 rallied 1.4%.

The group of decliners included;

Australian Coking Coal (3%), Aluminium (2.6%), Brent Crude (12.3%), China Coal (2.1%), WTI Crude (13.3%), Gasoil (7.6%), Hogs (8.7%), Copper (3.4%), Heating Oil (3.4%), JKM LNG (4.2%), Tin (5.1%), Natural Gas 3.1%, Nickel (4.4%), Gasoline (5.9%), Sugar (2.3%), Dutch TTF Gas (19.1%), Uranium (2.1%), Soybean (2%),  SPGSCI (6%), AEX (2.8%), KBW Bank Index (14.6%), CAC (4.1%), DAX (4.3%), DJ Transports (3.1%), MIB (6.6%), IBEX (6.1%), S&P MidCap 400 (3.3%), Nikkei (2.9%), Oslo (5.5%), Copenhagen (2.4%), Helsinki (5.3%), Stockholm (4.8%), Russell 2000 (2.8%), Sensex (1.9%), S&P SmallCap 600 (3.4%), Nasdaq Transports (4.7%), TSX (2%), FTSE 100 (5.3%), SET (2.3%), Chile (5.2%), ASX SmallCaps (2.6%) and the ASX 200 fell 2.1%.

March 19, 2023

by Rob Zdravevski


Natural Gas can be dangerous

There is much going on in capital markets.

In energy, while there has been a seeming long consensus in this theme.

In the meantime, we have seen Oil halve from its high and avid readers of my posts would recall my ‘short’ Natural Gas when it was $10.

My Natural Gas price target was published at $5 and as that target neared, it was revised lower towards the $2.50 mark.

It has been hovering around $2.50 now for a while…..but don’t quickly assume that when covering of a short, then equates into a complete reversal towards a ‘buy’.

Today, the price action in Natural Gas seems dangerous to me. This means that you don’t have to be there.

The pending price moves in Natural Gas could ‘rip one’s face off’.

That is meant to sound as violent as it reads.

From it’s current price of $2.50, Natural Gas could equally see $1 or $4.

60% up or 60% down.

Not exactly a compelling ‘bet’.

Also, I’ll have a think how that could affect any prospective equity opportunities that I might be pondering.

Contrarian observations are always automatic and inverse solves.

While, for end-industrial users though, it’s their buyers market.

March 16, 2023

by Rob Zdravevski


Queuing off the Copper/Gold ratio for Interest Rates

The Copper/Gold Ratio is touching the lower end of 2.5 standard deviations below its weekly mean.

Probability suggests in the near-term shorter term interest rates rise.

If yields rise, that means bond prices fall.

That implies a ‘long’ trap.

i.e. be careful buying bonds at these ‘shorter’ extremes.

March 16, 2023

by Rob Zdravevski



Monitoring if London Tin price trade down to $18,800 (+/- $300)

Currently at $22,825

March 16, 2023

Crude Oil mean reversion complete

Well, Well.

WTI Crude Oil has mean reverted to its 200 week moving average. Brent Crude is close but yet to do so.

Heating Oil and Gasoil (diesel) look like being in their way there too.

Who woulda thunk after all that palaver of Oil trading to $200 upon the outbreak of war in Ukraine.

The oil price has halved since that ‘invasion high’.

However, other extremes haven’t been registered and I’ll respect the downward trend which is still exhibiting strength.

There will be a few ways about how I’ll express my Long Oil view.

March 16, 2023

by Rob Zdravevski


Welcome to the Ides of March

A couple days ago, this type of headline was appearing, “US two-year Treasury yields drop the most since 1987”

This is misleading.

If only they could specify the ‘drop’. Was it the fastest ? The greatest percentage?

My reminder is to not let such media headlines create so much noise that you are derailed from your investment strategy.

Firstly, a few days ago, those yields are only back to where they were on September 21, 2022 (6 months ago).

Secondly, today’s yields are the same as 6 weeks ago (February 3rd,2023).

The better headline may have been “bond prices rise as buyers aggressively bid for U.S. Treasuries”.

In fact, more buying of 2 year bonds shouldn’t be surprising, as it would merely send the yield back to its 50 week moving average, which is hardly a stretch considering the preceding parabola.

The greater concern would be for those who shorted 2 year Treasuries at lofty ‘yield’ heights betting the Fed would continue its rate hikes into its 8th, 9th or 10th time.

Even if they did, the probability of a streak continuing diminishes the length that the streak continues. Put another way, if you shorted 2’s at 5.05%, you deserved to get whacked.

It was a time to buy bonds, not short or sell them.

Alas, but that’s what makes a market.

March 15, 2023

by Rob Zdravevski


Being early on bond yield peak

While others are reporting today’s moves in bond yields…..

…..this note and preceding editions of my ‘Macro Extremes’ post highlighted stretched heights in 2 year bond yields….

although my reading of the tape now says that it’s not a one way move towards middle to longer term mean reversion.

Perversely, they may be a another chance to buy bonds at the same or higher yield in weeks/months to come.

March 14, 2023

by Rob Zdravevski


%d bloggers like this: