A ‘trading’ high in Gold

I think the Gold price is at a ‘trading’ high.

Gold priced in AUD needs to break above A$2,695 to make a new ‘higher high’ and extend the current upward trend.

If not, the trend loses steam and wanes.

Currently, it’s A$2,635.

Then downside risk lies around A$2,435 (+/- $50).

USD priced Gold (currently US$1,771) needs to trade above US$1,808 to increase probability of the bullish trend continuing.

If it can’t breach that ceiling, it’ll prove to be a headfake and expect a re-test of the recent US$1,617 lows.

November 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

A signal when to add to equities

This study may be useful in conjunction with your other analyses.

Whenever bond prices exhibit medium to longer term overbought tendencies, it points to a reasonable moment when to increase your allocation to equities. 

Now, is not that moment.

Other times, in between these moments, might be considered as ‘trading through the cycle’.

November 15, 2022
by Rob Zdravevski
rob@karriasset.com.au

A temporary decline in interest rates and inflation

My latest newsletter tells stories how I think inflation and interest rates will moderate,

we can call it deflationary,

but it won’t last too long,

before working up and from new starting points into the decade.

Unless you are trading interest rates, the opportunities in the 2nd and 3rd derivative effect should be broad.

Also feel free to subscribe to the newsletter.

Macro Extremes (week ending November 11, 2022)

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)

Copper

Sugar

Silver in AUD and USD

Italy’s MIB Index

Overbought (RSI > 70)

Cattle

U.S. 2 year government bond yields

German 2 year government bond yields

U.S. 5-7 year corporate bond yields

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

None

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

Coffee

Bitcoin 

Chilean 10 year government bond yield

Oversold (RSI < 30)

U.S. 5 year yield minus U.S. 3 month bill yield spread

Hot Rolled Coil Steel (HRC)

Tin

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

None

Notes & Ideas:

If we look back to the past several weeks of Macro Extremes editions, you’ll notice all of those oversold currencies (versus the USD) and overbought bond yields, are no longer appearing currently.

As this publication highlights, once set prices touch their ‘extremes’, they tend to not spend much time at the pendulums highest or lowest arc.

‘All of those currencies’ have rallied, even the Rupee and the Rupiah.

The AUD/USD has risen 8% from 0.62 to 0.67 over the past month.

Bond yields have moved back lower, meaning bond prices are rising. For example, the U.S. listed bond ETF’s, IEF and TLT rallied 2.7% and 3.9% this week alone.

Weeks ago the U.S. 10 year bond was yielding 4.33%, now its 3.85%.

When Liz Truss was trying to torpedo the U.K. economy, its 10 year Gilts plunged and the yield rose to 4.77%. Today, they are yielding 3.35%.

It’s a constant reminder that many people (whether it’s institutional, corporate and individual investors or speculators) do the wrong thing, at the wrong time, at the wrong end of the pendulum.

Amongst the movers list below, it was a week for equities to soar and extend their rallies. The astonishing moves seen in the Nasdaq and the SOX.

The Hang Seng Index added 7% this week, to last week’s 9% advance and South Korea’s KOSPI’s rose a further 6% this week.

Switzerland’s SMI Index has risen 10% over the past 7 weeks, which was from the moment that it last appeared in the Oversold section of this publication.

However, this week saw the first equity index register a ‘Macro Extreme’ Overbought reading in many a week. That index is Italy’s FTSE MIB Index, which is understandable following a 17% advance over the past 6 weeks

Germany’s DAX Index has risen the amount over the same time and it is approximately 1.2% from joining the same overbought category.

Ahhh, that was more than a year’s worth of returns achieved in under 2 months.

Equity indices which didn’t join the party included China’s Shanghai Composite and CSI 300 which ‘only’ rose 0.6% while the U.K’s FTSE 100 fell 0.2% for the week.

The base and precious metals had a very good outing with Aluminium having rallied 12% in the past 2 weeks. Most of the metals had good weeks in U.S. Dollar terms. For example, Silver in USD climbed 4% but in AUD it only rose 0.5%, while Gold in USD firmed 5.4%, in AUD that figure was 1.7%.

And the energy commodities exhibited weakness as they remain the last holdouts of a broader commodity mean reversion.

The softs are mixed with Cocoa rising 4% (9% in 2 weeks), Rotterdam delivered Coal has fallen 22% over 2 weeks, in fact it has halved and it lower than pre-Ukraine invasion prices while Coffee continues to trend lower and is nearing an extreme of its own.

The larger advancers over the past week comprised of;

Aluminium 4%, Baltic Dry Index 2.4%, Cocoa 3.5%, China Coal 7.9%, Lean Hogs 1.7%, Copper 6.2%, Tin 10.5%, Nickel 7%, Palladium 10.2%, Platinum 8.1%, Sugar 5%, Silver 4.3%, Gold 5.4%, Gold in AUD 1.7%, AEX 4.6%, U.S. Banking Index 5.8%, CAC 2.8%, DAX 5.7%, Dow Jones Industrials 4.2%, DJ Transports 8%, MIB 5%, HSCEI 7%, Hang Seng 7.2%, INEX 2%, KOSPI 5.7%, S&P MidCap 400 5.3%, Nasdaq 100 8.8%, Nikkei 3.8%, Copenhagen 5.4%, Helsinki 3.6%, Stockholm 5.5%, Russell 2000 4.6%, SMI 3.2%, SOX 14.9%, S&P 500 5.9%, STI 3.1%, TAIEX 7.5%, TSX 3.4%, S&P SmallCap 600 5.3%, Nasdaq Biotechs 3.9%,  Nasdaq Composite 8.1% and Australia’s ASX 200 rose 3.9%.

The group of decliners included;

Rotterdam Coal (12.8%), Australian Coking Coal (5.1%), WTI Crude (3.9%), DXY Index (4%), Heating Oil (9.2%), Hot Rolled Coil Steel (2.4%), JKM LNG Gas (5.9%), Lumber (1.7%), Gasoil (11.4%), Coffee (4.4%), Natural Gas (8.1%), Orange Juice (4.5%), Gasoline (4.6%), Dutch TTF Gas (14.8%), Florida Urea (2.5%), Brent Crude (2.8%), Middle East Urea (5.3%), Corn (3.4%), Wheat (4%), S&P GSCI (2.9%) and Brazil’s BOVESPA fell 5%.

November 11, 2022

by Rob Zdravevski

rob@karriasset.com.au 

Bitcoin reaches my predicted $16,000

On September 20, 2022, I wrote that Bitcoin should trade down to $16,000 (+/- 600 points)

A few days ago, on November 9th, Bitcoin saw a low of 15,512 (on Coinbase’s exchange)

While this low rendered it oversold on a daily basis, it is close but not yet oversold on a weekly timeline.

However, on a weekly basis it did trade down to 2.5 standard deviations of its rolling weekly mean and nearly tickled 3 standard deviations. We don’t see this occur too often.

Back to that September 20 article, I wrote that a drop in Bitcoin’s volatility readings precedes a low in Bitcoin.

Bitcoin’s Volatility (BVOL) proceeded to drop from that date on (into November) and went oversold on a daily basis on October 14, 2022.

Bitcoin then saw this new, recent low on November 9th.

Incidentally, this week’s low in Bitcoin saw it register its lowest weekly RSI reading since November 2018, when Bitcoin was consolidating around the $6,200 mark.

Furthermore, that daily oversold moment for the Bitcoin Volatility Index was a day following what we now know as the S&P 500 low of 3,812 on October 13, 2022. While it wasn’t quite at my 3,656 prediction.

Perhaps that figure 3,656 level is visited later?

I don’t trade cryptocurrencies but I do watch the bellwethers to assist with risk appetite in other asset markets.

November 12, 2022

by Rob Zdravevski

rob@karriasset.com.au

3% more in the S&P 500

I think the S&P 500 rally should stall around 4,115 and not break the high of 4,118 seen on Sept 12, 2022.

4,155 (an extension of 1%) carries some probability, although it should be a head fake.

And keep in mind that daily ‘gap ups’ are ‘backed and filled’ at some time.

At 4,155 the S&P 500 would only be 14% below its all time high, while it will have seen a 19% advance from its October 13, 2022 low.

While such a bounce from 3,491 can be understood, being within 14% of the all-time high is a little difficult to comprehend in light of the 2 most notable headwinds not seen for 40 years…..a substantial change in inflation and the sizeable increase in the cost of capital.

So, whether it’s a further 3% or 4%, it’s a rally to rent rather than own.

November 12, 2022

by Rob Zdravevski

rob@karriasset.com.au

Alcoa’s volatility is worth watching

In 30 trading trading days since September 30, 2022…..

Alcoa shares have seen 23 trading days where the price moved up or down more than 2%.

Furthermore, 16 of the last 30 trading days saw the stock close higher or lower by more than 4%.

Although this prolific rate of change has existed for months prior.

Surely, nothing too exciting can happen about the fortunes of an aluminium producer which warrants such volatility?

Has Alcoa got the makings of becoming a ‘meme’ stock?

November 11, 2022

by Rob Zdravevski

rob@karriasset.com.au

Looking for ‘higher highs’

Something to compliment your trend continuation/exhaustion analysis or your general ‘reading of the tape’ is to watch whether equities prices which have recently made a ‘lower low’ are able to trade to a ‘higher high’ than their immediately previous high.

Here is an example I’m watching in the shares of Macquarie Bank (MQG.AX) and whether it can break above $184.18 which was its recent high on Sept 13th, 2022

November 11, 2022

by Rob Zdravevski

rob@karriasset.com.au

Mind The Gaps

Today’s stockmarket action isn’t constructive.

Whether traders/investors are celebrating inflation being ‘less’ bad or speculating on a change of interest rate policy……

These sharp moves create gaps in the price charts.

‘Gap-ups’ are often honoured (at some time) that prices trade back down to fill that gap between the previous day’s high and the low seen in the exuberance of the following day.

The chart below of Amazon is one example but you will find this littered globally across a range of stocks.

This a case of caveat emptor.

While rallies can pop a little higher be sure to assess your risk/reward skew amongst the current price action.

I think this is another rally to ‘rent and not own’.

November 11, 2022

by Rob Zdravevski

rob@karriasset.com.au

Happy Remembrance Day

Lest We Forget

When are commodities cheap?

Commodities are cheap when the CRB Index trades below its 200 week moving average and registers a weekly Oversold reading.

Presently, the heavy weighting of the energy complex is keeping commodity indices at elevated levels.

In fact, todays pricing is at levels exhibiting similar stretched moments prior to the CRB Index converging towards its 200 week moving average.

Keep in mind, that this is a study of the CRB Index, for selected commodities are in their own ‘cheap’ territory such as Copper and Iron Ore.

November 10, 2022

by Rob Zdravevski

rob@karriasset.com.au

%d bloggers like this: