Macro Extremes (week ending January 19, 2024)

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) either 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

KLSE – the Kuala Lumper Stock Exchange

Nikkei 225

Overbought (RSI > 70)

Cocoa

Uranium

Dow Jones Industrial Average

Nasdaq 100

Philadelphia’s Semiconductor Index

And India’s NIFTY equity 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)

USD/INR

Hang Seng China Enterprises Index (HSCEI)

Hang Seng (HSI)

Oversold (RSI < 30)

China 10 year government bond yields

Nickel on India’s MCX Exchange

Nickel on LME

Lithium Hydroxide

JKM LNG

CSI 300

The Oversold Quinella – Both Oversold and Traded at < 2.5 standard deviations below the weekly mean)

Soybeans

Corn

Shanghai Composite equity index

Notes & Ideas:

Government bond yields rose for the week, in back and forth weekly action over the past month, although yields are painting a picture of either consolidating the decline in yields seen since October 2023 or recovering part of the fade.

They have all bounced from their oversold extremes seen 4-6 weeks ago.

The only bond market to see yields fall was China’s 10 year paper.

Equities saw a 2-speed environment.

Most global equity indices saw weakness while the ‘larger’ U.S. indices continued their rise.

For example, the Nasdaq has risen 5.5% over the past 2 weeks, although it did fall 3.1% in the week prior to the most immediate fortnight. 

The smaller U.S indices didn’t see the aforementioned strength. The banking and small cap indices were flat while the Russell 2000 was down 0.4% and the MidCaps were up 0.4%.

However, some indices are now trading at stretched levels above their 200 week moving average.

The SOX (closed at its all-time high) is 46% above it, while the Nasdaq 100, the Nikkei 225 and the Nasdaq Composite are 31%, 29.5% and 21% respectively above that measure.

Incidentally, the S&P 500 is trading at 20% above its 200 week moving average and we may start to see money shifting and broadening to the Small and Mid Caps, the further that percentage spread rises.

Taiwan’s TAEIX rose 1% following an election return of the incumbent political party.

On the other side of the ledger, most European markets fell, lead by the Nordics but also including the 1% declines in the DAX and the CAC.

This week saw the Hang Seng and the HSCEI close at their lowest levels since October 24, 2022, while some mainland China markets were mute.

The CSI 300 fell 0.4% while the China A50 rose 0.6%.

India’s SENSEX fell 1.2% and isn’t overbought this week.

Copenhagen snaps its 10 week winning streak and the Nasdaq Biotechnology Index has broken its run of 9 consecutive weekly gains.

The Dow Jones Index had a bullish outside reversal week while Indonesia (snapping its 5 week winning streak) and India’s NIFTY performed outside bearish reversals.

Chile’s main index has fallen 5.3% over the past 3 weeks, yet still remains 21% above its 200 week moving average suggesting a reasonable probability that mean reversion (convergence) lays ahead.

The ASX Materials Index has sunk 9% in the past fortnight and the Hang Seng China Enterprises Index (HSCEI) has tanked 11.5% over the same time. The latter now appears in this week’s oversold category.

And Brazil’s BOVESPA has declined 5% over the past 3 weeks. 4 weeks ago, it was overbought.

Commodities were mixed.

The notable movers either side of the ledger broadly offset the week ending results for the various commodity indices.

Large advances were seen in Sugar, Cocoa & Cotton which saw advances compound to 11.5%, 9%, 4.5% respectively over the past fortnight.

For trend followers, Heating Oil is giving good bullish signals, while Palladium has sunk 25% over the past 4 weeks.

Natural Gas broke its 4 week winning streak as it collapsed 24% over the past week in wicked price action. It rose 30% in the prior 2 weeks.

Other gas contracts such as Dutch TTF and JKM LNG also saw weakness.

Gold (as priced in Australian Dollars) is in a 5 week winning streak.

Soybeans and Corn are registering oversold extremes. 

Soybeans are in a 5 week losing streak and have fallen 9 of the past 10 weeks.

While Corn is also nearing a major mean reversion. Some may recall my warnings of not chasing parabolic moves in grain prices at the commencement of the Ukraine invasion.

Cattle is still trading at extended percentages (35%) above its 200 week moving average.

And Lithium Hydroxide has now spent 29 consecutive weeks in weekly oversold territory.

Amongst currencies, the AUD has seen its 4th consecutive week of declines against many pairs (except against the Yen), which sits proportionally within my published note on December 29, 2023 that the AUD was ‘full’.

The U.S. Dollar has risen for the past 3 weeks against most pairs.

The only currency pair trading at an extreme this week is the overbought Indian Rupee versus the U.S. Dollar. Although this occurrence shouldn’t be taken at face value for there are some nuances about it. 

I see a dichotomy in the direction of the rising CHF/AUD and the ‘risk-on’ sentiment or more particularly, the strengthening Nasdaq.

This requires more work and some rationalising because the weaker Yen is emphasising ‘risk-on’ in equities.

The Euro was mixed.

The British Pound was firmer.

And the SEK/USD has fallen for 4 consecutive weeks resulting in a tumble of 5%.

This January 7th, 2024 note mentioned something about that.

The larger advancers over the past week comprised of;

Baltic Dry Index 3%, Cocoa 6%, Cotton 3.3%, Cattle 1.8%, Tin 3.6%, Gasoline 1.9%, Sugar 9.1%, Urea Middle East 2.3%, Uranium 1.9%, Oats 3%, Nasdaq Composite 2.3%, Nasdaq 100 2.3% and the Philadelphia Semiconductor (SOX) Index soared 8%.

The group of largest decliners from the week included;

Aluminium (1.9%), Rotterdam Coal (2.6%), Bloomberg Commodity Index (1.2%), JKM LNG (10.1%), Lumber (1.9%), JKM LNG in Yen (4.7%), Newcastle Coal (4.8%), Natural Gas (24%), Nickel (1.6%), Palladium (3.1%), Silver (2.5%), Dutch TTF Gas (11%), Shanghai Composite (1.7%), HSCEI (6.5%), HSI (5.8%), IBEX (2.3%), BOVESPA (2.6%), KOSPI (2.1%), FTSE 250 (1.7%), Nasdaq Biotech’s (1.7%), Oslo (1.6%), Copenhagen (3.1%), Helsinki (3.8%), Stockholm (2.5%), SET (2.2%), Chile (2.1%), FTSE (2.1%), ASX Materials (3.7%), ASX Industrials (1.6%), Austria’s ATX (1.6%) and the Developed All World Index ex USA fell 2.1%. 

January 21, 2024

by Rob Zdravevski

rob@karriasset.com.au

Reviewing last quarter’s Macro Extremes moments

Each Sunday I publish a note titled ‘Macro Extremes’ which observes and notes prices of various assets or markets trading at the extended part of their ‘pendulum’ for the week that just ended.

Here is a review of some selected price action of those appearing in the publication over the past couple months.

On December 19, 2023, the British 10 year bond yields were at their lowest since May 2023. They have since moved from 3.50% to 3.92%.

The October 22, 2023 edition saw Mexico’s IPC equity index register a ‘quinella’ of oversold readings when it was at 47,800 points. By December 20th, it rallied (21%) to 58,000 points when it reached an overbought quinella.

That same edition mentioned the extreme oversold of the Nasdaq Biotech Index when it was trading around the 3,650 point mark. 3 weeks ago, its was overbought when it hit 4,430 points, which is a stupendous 21% run within 9 weeks.

A week later, the ASX Industrials Index triggered its own oversold quinella at 6,150 points. it soon lifted (12%) to 6,900 points by New Years Day.

And the October 6, 2023 edition warned to not chase the overbought Orange Juice price which was then trading at $3.90. Its current price is $3.08.

The next edition of Macro Extremes is published tomorrow.

January 20, 2024

by Rob Zdravevski

rob@karriasset.com.au