Market Quips & Synopsis – Sept 18, 2020

Market Quips & Synopsis Some brief points about selected markets or assets and look for the links within for added musings.

About current markets, I’ll open up by saying..

I notice there is dangerous trading going on, market capitalisations in some companies are extraordinary.
For example, how does $1 billion market cap on revenues of $20,000 sound?

ASX scuttlebutt says, “shorts” are trying to pressure companies into raising capital, some are seeing increased stock “promotion” activity and there are many people in the market “that don’t know what they’re doing or shouldn’t be there”.

I see the AUD and XAU (Gold) in a holding pattern, (see the AUD chart below);
they need to hold 0.7240 and $1,902 respectively,
breaks above 0.7355 & $1,978 should see a new lurch higher

Also watching AUDJPY closely, need to hold 76.00 to confirm “more risk-off”,
A move above 0.7730 suggests “risk-on” and higher equity indices

Another indictor to assess the steam in a S&P 500 decline is whether Japanese 10 Year Bonds (JGB”s) trade below 0.00%.

The S&P 500 is down 6% from recent highs,
Indicators are not clear in calling a new downward trend, however I think 3,272 is the target (a further 2.5% lower).

The Nasdaq 100 has now fallen 11% since its September 2nd high.
Looking for it to ease a further 2.4% to 10,814 before determining the strength of the decline.
The decline wasn’t a surprise, as written by me on August 29 and September 3rd  

Global portfolios have a 3% short position in either (or both) the Nasdaq 100 or the SOX index

My ASX 200 target is 5,803, which is 1.2% below the price as I write.

I’m pleased with calling Oil down from $44 to $39.30. Brent held $39.30 for the past week, 
has since rallied 10% in past 4 days….quick rallies are not always a preferred scenario

VIX remains relatively high at a reading of 26, the call option phenomenon has influenced this increase

The De-Equitisation story combined with rising money supply & low interest rates leads to my thesis that higher equities is the dominant and over-arching long term theme.

While we accept near-term rates will stay Lower for a while,
I think the long end of interest rate curve will rise.

AAII Survey exhibiting narrowest bull/bear spread since June 11, which is when S&P 500 had a 8.2% decline.
Since March 5th, more retail investors have remained bearish (than bullish). This survey remains a reasonable contrarian indicator as markets bottommed on March 26th and never looked back.

Oil Rig count showing no meaningful change of increase, see attached, number of rigs in operation has halved

I remain long term bullish on the Oil price and continue to accumulate positions (proxies) to benefit from this opinion.
Incidentally, I have a view there is a coming crisis in energy prices which will stoke inflation (albeit it may be 18 months away) 

In another edition, I’ll expand on various investing themes and I hope to soon publish my bullish thinking about Platinum on my Linkedin page.

That’s all for now…

warm regards,

Margins on Gold futures have tripled

Here is an 11 year overview of the margin (maintenance) requirements to trade Gold futures contracts on the CME.

Follow along and your pattern recognition will develop.

I hope you didn’t think that the price of Gold moved based on demand from Indian jewellery merchants ?

While there are arguments abound whether it’s a measure of inflation, a store of value or even considered currency.

The chart below and my notes within suggest that more than anything else, Gold is a “financial instrument derivative”.

Gold prices seem to be influenced by the futures margins which are set by the CME, which in turn fuels or repels the speculators.

Where the price of Gold typically falters (or is stifled) is when the percentage of the required margin creeps above 4% of the notional contract value.

The eliptical area in the chart is a period when the margins were closer to the 5% of the notional contract value, which is similar to today.

Over the past 2 years, the margins required to trade a Gold futures contract have tripled while Gold has risen 67%

What if the CME increases margins by another 25% or 50%?

by Rob Zdravevski
September 5, 2020

Gold stocks have fallen 20% from recent highs

My cautious views about chasing the gold price had merit and today (albeit my timing was off by a month) are justified as the reward didn’t out-stack the risk being taken of being long Gold and gold stocks following what I viewed as the “fat part of the trade” was already had and the tail was wagging during a euphoric move driven my media and the herd.

In other words, my work suggested that initiating a long position in May, June or July was a marginal proposition.

Now, ASX listed gold stocks are 20% below their recent highs, but more interestingly some are trading at the same price seen in January, February or March of 2020.

If you are a “trader” and you managed to “pick the eyes” out of the peaks and trough, I’m certainly pleased for you but as an investor, that’s not my bag.

As prices in gold securities continue to make weekly lower highs and lower lows, over the weekend, clients will be receiving my entry price suggestions for selected stocks at the lower end of this mean reversion and trend correction.

I’ll continue to post notes on various assets and securities when I see extremes (at either end) of price action or sentiment.

August 28, 2020

by Rob Zdravevski


Gold Price Action Update – August 27, 2020

Short term, gold is in an early downtrend,

trend is not strong,

thus we rely on whether immediate support levels will hold,

if they don’t and they are broken, then we look at velocity of the move to determine if this embryonic down trend has strength (and perhaps more longevity)

In this interim or this current short term view,

My email to clients on Monday August 24th, suggested support levels for USD Gold where $1,907 – $1,882,

Yesterday Gold traded to $1,902 on that support line and has bounced $40,

see two charts below (one is the “bigger timeframe, the other is a close up on yesterdays low kissing the support line)

I expect Gold to test that support line again in the next day or so and watch if it holds before making the next call.

August 27, 2020

by Rob Zdravevski


Gold and percentage extremes above its 200 day moving average

Gold W 200dma %

Here is a “weekly” 35 year chart of Gold and its rolling 200 day moving average.

At selected peaks, I have added the percentage that the Gold price was trading above its “weekly” 200 day moving average.

Incidentally, each move where percentages are listed coincided with a 3 standard deviation above its mean.

Today it makes for a marginal “even money” bet.

Let’s say that Gold extends itself to 80% above the 200 dma, thus taking it to $2,466 OR it decides to move lower to visit the “weekly” 200 dma of $1,370…..

So from today’s price, it’s either $530 per ounce upwards or $570 per to the downside.

Mean reversion does have its own gravitational pull.

August 20, 2020

by Rob Zdravevski


Not feeling “golden” this week

This is not a celebratory post but intended to highlight the practice of observing prices and moods when they reach an extreme.

There are times when experience tells you that things are stretched, feeling “dangerous” or perhaps resembling mania, frenzy or euphoria.
(see my recent posts warning of such)

I still wonder what makes people chase assets at “stretched” prices.

Are they trying to “eek” out the last 10% of a move?

Are they oblivious that the “fat part” of the trade has been seen and had?

Do they understand what their risk/reward ratio looks like?

Today’s example is the price action in Gold.

Yesterday (overnight) Gold fells $130 per ounce of ~ 6.3%. It’s trading at $1,915 as I write this. Incidentally, Silver plummeted 17%.

It’s difficult (impossible, even) to pinpoint the timing of such a move, but it should be easier to understand when not to chase something at perpetually higher prices without having a sound reasoning for doing so.

Today, prices of Aussie gold companies are 7% lower and the poor sod who bought Saracen Minerals (SAR:ASX) 2 weeks ago at $6.75 is wearing 20% worth of pain.

Furthermore, these stocks are now trading at the same prices seen 6 weeks ago.

Wasn’t gold hitting new highs only 4 days ago?

August 12, 2020
by Rob Zdravevski

Timber !

The 3 best commodities trades since the March 2020 lows have been Long Oil, Silver and Lumber.

Yes…..Lumber. (see chart below)

All have doubled over the past 4 months.

Where to next….
Oil’s bullish trend is still intact,

Silver is overbought, at extremes and warrants caution if you are long (susceptible to a pullback to $18),

and Lumber is a Sell. With its 3 standard deviation above its ‘weekly’ mean and an outside reversal week, it’s time to cash in the (wood) chips.

by Rob Zdravevski
July 27, 2020

Gold exploration declines by 55%

English: Pouring molten gold into ingot mold a...

The volume of drilling activity in the global gold industry has fallen by 55 per cent in the past 12 months, new data from research group IntierraRMG has found.

Less exploration means supply.

Less gold supply should mean a higher gold price, ONLY if gold demand stays steady or rises.

Such a scenario will benefit gold companies who have a proven resource.

Often, the best thing such a company can do, is to leave the gold in the ground rather than spending hundreds of millions of dollars trying to extract it.

Management who think that success is measured by how much gold they “pour” can prove to be a handicap for its company’s share price, especially when capital is scarce.

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