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

My current picture of the price of Copper.

Resistance lines are being flirted with.

I expect the new yet weak short term rising daily trend to exhaust itself between $3.56 – $3.61 level.

This should see the S&P 500 and AUD/USD mimic this directional short-term move.

I’m watching out for a ‘bull trap’.

The downward medium term trend in Copper remains intact.

I would need to see Copper trade above $3.79 for that bearish medium term trend to wane.

October 24, 2022

by Rob Zdravevski

rob@karriasset.com.au

Health Check – the Copper/Gold Ratio

Checking in on the Copper/Gold Ratio and if it is Oversold on a Weekly basis because its coincides with a “low” in the S&P 500.

We saw the most recently occurrence in June 2022.

We can also look at the Copper/Gold Ratio as an indicator of the economy’s health.

A glass half-full suggests the economy currently isn’t ‘too sick’

A glass half-empty view ponders that the economy is heading into sickness.

There is no written rule that the Copper/Gold Ratio needs to ‘double dip’ into Oversold territory again. It may already have done its ‘sickness’ signalling and we haven’t seen it make such a double dip before.

Would would it take to do so?

One scenario would be to see the Copper price trade to $3.00 (12% lower than today) while the price of Gold remains steady.

My studies suggest this is plausible while Copper’s medium term trend remains downward.

It’s worthy to note that the Copper/Gold Ratio (HG/GC) correlates well with the direction of interest rates and currently there is a notable divergence occurring, with U.S. 10 year bond yields drifting higher and apart from the HG/GC.

That’s for another post.

October 17, 2022

by Rob Zdravevski

rob@karriasset.com.au

Copper

The Copper scarcity theme remains intact. Timing and how you express your investment view will be my focus.

It was wrong to chase copper related equities and an equivalent Chicago copper price a $5.00.

“They” are now, somewhere between 30% and 60% lower than the price was 3 months ago.

https://www.bloomberg.com/news/articles/2022-09-21/copper-prices-fall-despite-signs-of-looming-crucial-metal-shortage?sref=qLOW1ygh

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

Economy Health Check

I’m watching the Copper/Gold Ratio (HG/GC)

Its direction tells me about the health of the economy.

The direction of the HG/GC also helps confirm the direction of interest rates. More specifically, the U.S. government 10 year bond yield.

In the chart below, I’ve overlaid a price chart (in blue) of the S&P 500 against the HG/GC.

You can see that the general direction of both the SPX and the HG/GC follow each other.

At this moment, the HG/GC is nearing a point where it breaks either way.

We’ll need to wait and watch in the coming week or so.

In my earlier post today, I imply that interest rates may rise.

This, then suggests that the HG/GC breaks higher (meaning Copper rises and Gold declines) which translate into the S&P 500 rising further.

A ‘melt-up’ in the S&P 500 is not a perverse idea, especially against the grain of many who are calling the top, let alone a crash.

It may seem odd to think, but markets often move to where they can do the most damage…..

and going higher can damage those who have been on the sidelines or sold up recently.

Missing out can also hurt investors.

September 10, 2021

by Rob Zdravevski

rob@karriasset.com.au.

Copper on verge of breaking lower

Carrying on from my May 2021 call and reiteration in June 2021, Copper continues its laddered decline closer to its longer term mean.

Today, Copper is perilously poised.

It is trading at $4.24 on the front Comex contract and a break below $4.17 could see a swift decline to the $3.65-$3.43 level.

Your stop loss on a new short entered here would be $4.37, while a move above $4.45 will help wane the strength of the current downtrend.

August 18, 2021

by Rob Zdravevski

rob@karriasset.com.au

The economy is still healthy

The direction of the Copper/Gold Ratio (HG/GC) is a good indicator for checking on the health of the economy. Think of it as a thermostat.

It is also well correlated to the direction of the U.S. 10 year (the 10’s) bond yield. Often, the HG/GC precedes the move in interest rates.

In a recent post I wrote about the HG/GC’s relationship to the S&P 500.

Today, the short-term direction of the Copper/Gold Ratio has been down and so the 10’s (and S&P 500) have mimicked that.

The longer trend upward trend of the Copper/Gold Ratio remains intact.

Where this ratio trades to and its effect on the 10’s will determine the size of, and where the allocation of capital moves to.

Separately, (on a weekly basis) the 10’s have traded down to 3 standard deviations below its mean. Such a 3-sigma event has foreshadowed higher equity prices.

It’s at an acute point, however the equities bull market continues.

July 21, 2021

by Rob Zdravevski

rob@karriasset.com.au

The Copper/Gold Ratio says markets move higher

The chart below shows the S&P 500 (SPX) overlaid with the Copper/Gold (HG/GC) Ratio on a daily basis over the past 15 years.

The latter ratio is a good indicator of the economy’s health and sometimes a predictor of interest rate direction.

I find this chart helpful when pondering my asset allocation to equities and how much broader risk I am comfortable taking, especially at the later end of an advance, bull market or rally.

I like seeing how the SPX reacts when the HG/GC breaks above or below its trend lines.

Today’s reading of 0.002396 is calculated by dividing the Copper price of $4.32 into Gold’s $1,803.

At this moment, while the HG/GC’s is trading above its trend line (and a reading of 0.00222) it is suggesting that the S&P 500 advance remains intact……..

This seems quite perverse to many, as pundits reiterate their calls of an overvalued, ‘bubble-esque’ equities market.

In some recent posts I challenge the norm and perhaps the consensus call for a notable decline.

The S&P 500 can continue trading at the historical higher end of its historical stretch above its 200 Week Moving Average, just like the late 1990’s.

https://www.linkedin.com/posts/robzdravevski_the-sp-500-is-trudging-higher-and-has-registered-activity-6817722567969927168-bcxo

and the way the S&P 500 relates to the U.S. 10 year bond yield or more pointedly, the spread between the 10 year and 2 year yield is another important indicator to watch.

https://www.linkedin.com/posts/robzdravevski_its-an-interesting-market-day-developing-activity-6818881106222444545-Wh-o

Investing is a highly nuanced past time or business.

Often markets move to where they can do the most damage….and going up can cause as much damage as going down, in circumstances such as ‘missing out’ or underperforming other fund managers if you’ve been holding a lot of cash.

P/E ratios are not the only thing to look at.

One scenario of a 0.00222 reading is Copper falling to $4.10 and Gold rising to $1,850. Just something to play around with.

July 12, 2021

by Rob Zdravevski

rob@karriasset.com.au

Keeping tabs on my Copper call

I was interviewed for this article (link below) on May 11th, 2021 in which I’m calling for a decline in the price of Copper.

Topically, Copper peaked a day earlier at $4.89.

Since that day, Copper’s price has fallen 14%.

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/experts-caution-on-copper-after-decarbonization-stimulus-driven-price-boost-64381465

On April 30th, 2021, the post link below highlights the consensus Long Copper trade.

https://www.linkedin.com/posts/robzdravevski_trap-reversion-overbought-activity-6793874441995726848-EXOm

My target price over then next few months is $3.43, which would coincide with a 50% retracement of the 15 month advance from March 2020,

but we’ll need to see if it holds the $4.04 level first.

June 29, 2021

by Rob Zdravevski

rob@karriasset.com.au

%d bloggers like this: