rob zdravevski's blog

Macro Extremes (week ending December 23, 2022)

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)

Cocoa

Sugar

Overbought (RSI > 70)

German 2 and 5 year government bond yields

Cattle

Istanbul’s BIST Index

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

Japanese 10 year bond yield

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

U.S. 10 year bond yield minus German 10 year bond yield spread

Palladium

AUD/JPY

Oversold (RSI < 30)

Hot Rolled Coil Steel (HRC)

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

None

Notes & Ideas:

We saw a sensible (all things considering) week for equities.

In last week’s edition, I wrote “I’m watching the Bovespa and the weaker Real”…

The Bovespa bounced 6.7% for the week, following last week’s Oversold reading and the Brazilian Real rose 2.8% over the week versus the USD.

Bond yields mainly rose and overall they remain notably above their 200 week moving average.

For some context (of the losses which have occurred in the bond market), the 200 week moving average for the German 10 year bond yield is 0.04%, while the bond is today trading at 2.41%.

Mean reversion predictions aside, this means that for a few years, the mean yield was hovering around 0.00% (and negative). The magnitude of the drawdown of capital is extraordinary.

The U.S. 5 year yield minus U.S. 3 month bill yield spread isn’t oversold anymore.

In commodities, gases were down and the petroleums were up, in size.

The Baltic Dry Index continues its rise, now up 34% in the past 5 weeks.  

Coffee has climbed 11% since the 6 weeks it appeared as oversold in this periodical.

Palladium hits a new 52 week low, again.

Hot Rolled Coil Steel remains Oversold for the 26th consecutive week,

The CRB Index still has more downside work (or convergence) towards reverting to its mean.

And the AUD/GBP posted a bullish outside reversal week.

The larger advancers over the past week comprised of;

Baltic Dry Index 5.8%, Brent Crude 6.7%, Cocoa 6.2%, WTI Crude Oil 6.9%, Gasoil 2.4%, Lean Hogs 2.4%, Heating Oil 4.7%, Coffee 4.6%,  Platinum 3%, Gasoline 11.8%, Sugar 4.4%, CRB Index 2.5%, Cotton 4%, Silver in AUD 1.8%, Silver in USD 2.2%, Corn 2%, Oats 7.4%, Rice 8.1%, Wheat 3%, S&P GSCI 3%, KBW Banking Index 1.7%, IBEX 1.9%, BOVESPA 6.7%, Helsinki 2%, FTSE 100 1.9% and Istanbul’s BIST climbed 4.5%

The group of decliners included;

Rotterdam Coal (2%), China Coal (3.9%), HRC Steel (2.1%), JKM KNG (21%), Natural Gas (23.1%), Orange Juice (2.9%), Rubber (2.7%), Dutch TTF Gas (28.1%), Urea (5.5%), Shanghai (3.6%), CSI 300 (3.2%), Nasdaq Composite (1.9%), Nikkei 225 (4.7%), Nasdaq 100 (2.3%), Nifty (2.5%), SOX (3.8%), TAIEX (1.8%), while the S&P 500 eased a mere 0.2%, the ASX 200 retreated 0.6% and the ASX Small Caps declined 1.2%.

December 24, 2022

by Rob Zdravevski

rob@karriasset.com.au 

Potential ‘lower lows’ in big U.S. Oil stocks

As I seek lower prices across the energy complex before being interested in re-entering long positions…..

I’ve posted a chart of Occidental Petroleum (OXY:US) which broadly illustrates the pattern recognition amongst a host of stock prices related to this sector.

It’s a story of ‘higher highs”, ‘higher lows’, ‘lower highs’ and ‘lower lows’.

At this moment, if OXY breaks below $57.43, then the $54’a are tested and below that, the $43 region becomes in play, if not $39.

That’ll upset those who followed in behind Warren Buffett’s news or acquiring OXY shares in mid August 2022, but you need to research the terms which he was buying.

December 23, 2022

by Rob Zdravevski

rob@karriasset.com.au

Identifying parabolas and then mean reversion – the story of 2022

The most dominant words in my posts throughout 2022 were “parabola” and “mean reversion”.

Perhaps they appeared ad nauseam but it was were the action was……and the action was to recognise them and stay away.

The skilled (and brave or stupid) may have chosen to see them as shorting opportunities.

None of these calls and warnings will show up directly in anyone portfolio performance. It’ll just be something that we just wink at each other acknowledging that we saw what has going on.

An addendum to my studies covering this broader theme included references to the percentage an asset’s price was trading above its 200 day or 200 week moving average.

It all helped identify the rare air where prices were flying up to.

Since then, there has been much damage to investors, speculators and corporations.

Stay tuned for some examples of damage and mean reversion.

In the coming months, I think we will see prices continue to digest recent moves, produce a few more spikes and head fakes dragging in new participants while incumbent holders cling to new hope of breaking even.

Any new waves of weakness in prices (because markets are cruel) will see various speculators throw their weak hands in.

December 22, 2022

by Rob Zdravevski

rob@karriasset.com.au

Oversold AUD/JPY equates to buy signal for S&P 500

Another study to watch when looking for a notable low in the equity market.

When the AUD/JPY touches oversold on a weekly basis, ’tis tends to be an attractive accumulation moment in the S&P 500.

Perhaps we are approaching the 6th occurrence to be seen over the past 30 years.

December 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

In focus – Copper/Gold Ratio

Time to watch the Copper/Gold Ratio again and how it relates to the stockmarket and invariably the health of the economy, the direction of GDP, bond yields and even the price of Copper.

The chart below overlays the Copper/Gold Ratio with the S&P 500 along with a couple support and resistance lines thrown in.

December 19, 2022

by Rob Zdravevski

rob@karriasset.com.au

Macro Extremes (week ending December 16, 2022)

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)

Chinese 10 year government bond yields

Silver

Sugar

Overbought (RSI > 70)

German 2 year government bond yields

Cattle

Istanbul’s BIST Index

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)

U.S. 10 yer bond yield minus German 10 year bond yield spread

Brent Crude Oil

BOVESPA

Oversold (RSI < 30)

Hot Rolled Coil Steel (HRC)

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

Chilean 10 year bond yield

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

None

Notes & Ideas:

The big news for the week was that Brent Crude Oil touched the lower of its standard deviations extreme.

After being bearish for 12 months, Oil is nearing a Buy signal.

Otherwise, we saw European government bond yields rise (ECB President Lagarde scared them with rhetoric), while U.S. bond yields fell.

Moreover, the U.S. series of bond yields started making newer, recent lows and I found it interesting to see the U.S. 10 year breakeven inflation rate fall to 2.13%, which is its lowest since January 2021. This is down from its 3% April 2022 reading,

Meanwhile the Korean 10’s are marching closer towards a long term mean reversion as is the price of Gasoline.

The Baltic Dry Index has risen 28% over the past month,

The Nordic bourses joined the weakness seen in U.S. equities, 

Palladium hit a new 52 week low, 

I’m watching the Bovespa and the weaker Real,

the Dow Jones Transport only fell 0.2% for the week,

equally small cap indices aren’t over exaggerating declines in the large caps, 

Hot Rolled Coil Steel remains Oversold for the 25th consecutive week,

Lastly, Nickel isn’t overbought anymore.

The larger advancers over the past week comprised of;

Baltic Dry Index 12.6%, JKM LNG 6.6%, China Coal 2.8%, WTI Crude 4.8%, Gasoil 8.7%, Lean Hogs 5.2%, Heating Oil 11.7%, Coffee 4%, Natural Gas 5.7%, Sugar 2.5%, CRB Index 1.9%, Brent Crude 3.3%, Rice 1.9%, Wheat 2.6%, Istanbul 2.5% and the S&P GSCI Index rose 2.8%.

The group of decliners included;

Aluminium (3.1%), Rotterdam Coal (10.2%), Iron Ore (1.8%), Copper (3%), Lumber (6.3%), Nickel (7.6%), Orange Juice (2.3%), Palladium (13.3%), Platinum (3.5%), Dutch TTF Gas (17%), Urea U.S. Gulf (2.6%), Uranium (4.8%), AEX (3.3%), KBW Banking Index (2.8%), CAC (3.4%), DAX (3.3%), DJ Industrials (1.9%), MIB (2.4%), HSCEI (2.9%), HSI (2.2%), IBEX (2.1%), BOVESPA (4.3%), Nasdaq Composite (2.7%), S&P MidCap 400 (2.4%), Nasdaq 100 (2.8%), Stockholm (3.3%), Helsinki (3.9%), Copenhagen (2.6%), Russell 2000 (2.3%), S&P SmallCap 600 (2.7%), SMI (2.7%), SOX (3.1%), S&P 500 (2.1%), TSX (2.5%), FTSE 100 (1.9%), and Australia’s ASX 200 and ASX Small Ordinaries both declined 0.9% for the week.

December 18, 2022

by Rob Zdravevski

rob@karriasset.com.au 

The year end 2022 Newsletter for the coming year