Notable low for S&P 500 isn’t in yet

The vertical lines show the significance when the Japanese 10 year bond yield is (on a weekly chart) simultaneously OVERSOLD and trading 2.5 standard deviations and BELOW its rolling weekly mean.

Around the same time, the S&P 500 also registers a notable low.

There have been 9 such moments over the past 15 years when probability suggests nibbling and adding to your holdings.

BoJ and Fed news this week will be helpful shaping the JGB yield but this study suggests the S&P 500 low isn’t there yet. This doesn’t necessarily mean a lower low, but rather a ‘notable’ low.

September 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

A trough in Bitcoin volatility portends a S&P 500 bottom

Bitcoin’s price action, trend and sentiment suggests it tests somewhere around the US$16,000 mark. +/- $600.

A drop in Bitcoin’s 30 day volatility precedes a trough in the price of BTC/USD which precedes ‘one more decline’ in the S&P 500 before itself finds a floor.

This would put my S&P 500 target around 3,645.

A bottoming process which builds into a rally in these two markets would cause much damage to all those huddled on the other side of the boat.

p.s. The direction Bitcoin also has reasonably good correlation with the Australian Dollar and commodity prices.

September 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

Extremes in JGB yields are S&P 500 Buy/Sell signals

A month ago, I published this study highlighting the correlation whenever Japanese 10 year bond yields are overbought and oversold happen to signal a corresponding low or high in the S&P 500.

Macro Extremes (week ending September 9, 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)

U.S. 30 year government bond yield

EUR/GBP

Overbought (RSI > 70)

U.S. 2 year government bond yield

Spanish, French and Italian 10 year government bond yield

TBT

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

U.K. 10 year government bond yields

U.S. 20 year government bond yields

German 2 & 5 year government bond yields

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

CAD/USD

SGD/USD

Oversold (RSI < 30)

U.S. 5 year minus U.S.3 month government bond yield ‘spread’ (not inverted)

TLT

Tin

GBP/USD

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

CNH/USD

KRW/USD

JPY/USD

Notes & Ideas:

The big news for the week includes Government bond yield are amongst the ‘overbought’s’, the bounce in only some equity markets and the continued strength of the U.S. Dollar.

So telling is the strength of the USD, the Japanese Yen is now at a 24 year low against the USD. That’s September 1998. 

While the British Pounds seems to be the most weakest amongst the G7. It is registering extremes lows against the USD, EUR and the AUD…..I’ll take a look at buying Sterling.

In last week’s edition, I wrote;

Government bond yields are approaching their next round of being overbought, as are Cattle prices.

<the former are so, the latter is closing in>

Gold, Silver and Platinum are nearing buys, 

<Gold was flat, while Silver rose 4% and Platinum soared 7% for the week>

Last week I mentioned that the Shanghai Composite, Copper and the U.S. KBW Banking Index had traded back down to their respective 200 week moving average for the second time in as many months.

This week, they appear amongst the gainers.

In other notes, the DXY is no longer Overbought while Hot Rolled Coiled Steel moves out of Oversold territory.

Palladium, MidCap 400, the KBW Banks, Nasdaq 100 and S&P 500 all performed an Outside Bullish Reversal week. The Russell 2000 did not.

The HSCEI and Hang Seng made lower lows. Look for more weakness, which should culminate into a buying opportunity.

Aluminium and Copper both mean reverted to their 200 week moving average, with the latter doing so for the 2nd tine in as many months.

The Nasdaq biotechnology index is 23% above its mid-June 2022 intra-day low.

For perspective, much of the rise in U.S. equities merely recovered some or all of the previous week’s decline. 

For example, the MidCap 400 and SmallCap 600 fell 4% last week to see a 4% this week.

Similarly, the S&P 500 made up all of last week’s 3.3% fan with a 3.7% bounce. 

The Philadelphia Semiconductor Index fell 7.1% a week earlier and clawed back 4.7% this week

And while S&P 500 didn’t manage to revert to mean its 200 week moving average in mid-June 2022, it can do so in the coming weeks without creating a ‘lower low’ of the June prices.

The mean is rolling higher, which is knowns as convergence.

The larger advancers over the past week comprised of; 

Baltic Dry Index 11.7%, China Coal 6%, Lean Hogs 3.5%, Copper 4.5%, HRC 4.9%, Lumber 7.2%, Palladium 7.5%, Platinum 7.2%, Uranium 5.7%, Silver in AUD 3.8%, Silver in USD 4.3%, Corn 2.9%, Oats3.6%, Wheat 7.2%, Shanghai 2.4%, KBW Banks 5%, CSI 300 1.7%, Dow Jones Industrials 2.7%, DJ Transports 2.4%, S&P MidCap 400 4.4%, Nasdaq 100 4.1%, Nikkei 2%, Russell 2000 4%, SOX 4.7%, S&P 500 3.7%, STI 1.8%, Istanbul’s BIST 4.5%, Toronto’s TSX 2.6%, S&P SmallCap 600 2.8% (partially recovering last week’s decline of 5.2%), Nasdaq Biotechnology 5.5%, Nasdaq Composite 4.1% and Australia’s ASX 200 recouped a fraction of the previous week’s 3.9% decline, it rose 1%.

The group of decliners included;

Australian Coking Coal (2.3%), Rotterdam Coal(10.4%), Cocoa (2.3%), Gasoil (2.9%), JKM (2.4%), Tin (6.9%), Natural Gas (9%), Orange Juice (1.9%), Dutch TTF (3.5%), U.S. Gulf Coast Urea (5.4%), Middle East Urea (8.3%) and Oslo’s equity index fell 2.4%.

September 10, 2022

by Rob Zdravevski

rob@karriasset.com.au 

Looking for peaks in equity markets

In the chart below, the vertical lines show the significance when the Japanese 10 year bond yield is (on a weekly chart) simultaneously Overbought and trading 2.5 standard deviations above its rolling weekly mean.

The S&P 500 then reaches a meaningful, long term peak.

There have been 5 notable moments over the past 15 years.

The most recent peak coincided with my December 28, 2021 newsletter citing the same point.

https://mailchi.mp/karriasset/a-distorted-sp-500-amongst-extreme-peaks.

August 6, 2022

by Rob Zdravevski

rob@karriasset.com.au

Bitcoin and S&P 500 may swoon together

As a proxy and correlation for ‘risk-on’ and risk-off’ sentiment, Bitcoin is once again poised at a support level (~$38,000) worth watching.

And more so, as it remains in a medium term downtrend.

Failing to hold this near term support, Bitcoin should visit the $29,700 (+/- $250) area.

Such a 24% decline should coincide with my previous writings about a 20% decline in the S&P 500.

March 11, 2022
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.

It’s only 10%

Context is required

If a 10% correction in the S&P 500 was to occur, we’re only back to March 2021 levels.

Hardly earth-shattering stuff.

In fact, a 12% retracement would see the S&P 500 kiss its 50 week moving average.

All quite healthy and plausible.

Currently, the S&P 500 is exhibiting a bearish outside reversal week.

As mentioned in my recent Macro Extremes note, it’s going to be an interesting week or two. The S&P 500 is also registering a weekly Overbought reading and my other indicators are also increasing probability for a move lower over the next 2 weeks or so.

My target for any decline is 4,022.

My medium term view is that equities move higher and any decline is merely a blip in the larger picture.

If ‘corrections’ concern you, it’s time to consider selling shares so to lower the amount of money exposed and at risk or consider taking out some insurance against ‘market risk’ such as buying put options or shorting the S&P 500 futures.

I bet many won’t do any of that.

August 18, 2021

by Rob Zdravevski

rob@karriasset.com.au

The Case for Higher Equities, a Stronger USD and Weaker Commodities


The US 10’s are yielding 1.33% and the Aussie 10’s are 1.20%.

That spread (difference) between the US 10 Government Bond Yield and the Australian 10 Year equivalent is currently 0.13%.

But the figure doesn’t really matter, it’s the direction of the trend which is of greater importance.

As we see today………a rising trend (and when coupled with a break above a trend line) portends greener pastures for equity prices.

Below you will find a ‘close-up’ of a Weekly chart, highlighting the current ‘break-out’, while the 40 year chart (on a Monthly basis) illustrates a rising trend (of the spread) equating to an advancing S&P 500 (SPX), while a decline trend results in a lower or sideways travel.

A rising trend in this interest rate differential tend to also equate to a stronger US Dollar, which in turn means a weaker AUD.

Which…..also correlates to weaker commodity prices.

This is an indicator worth watching for your macro and longer term positioning.

Who would think we’d see a stronger US Dollar?

Rising yields on U.S. Treasuries will prolong the advance in the Dollar.

And rising interest rates add to debt servicing stress which can lead to Sovereign Debt pressure (there is no use calling it a crisis, until it becomes one) at which point the U.S. Dollar remains the currency of ‘last resort’.

This can lead to more buying of the U.S. Dollar.

See how this scenario can develop?

August 11, 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

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