Understanding and dealing correctly with the trade-off between risk and return is a fundamental, but poorly understood, challenge faced by all gamblers and investors.~ Edward Thorp
In this week’s Dirty Dozen [CHART PACK], we talk average bear markets, playing politics with national security, a rare breadth thrust in tech stocks, extreme short positioning in bonds, small caps at small valuations, and uranium names with nuclear fundamentals, plus more…
- @EnronChairman shared an illuminating graph last week on what it feels like to be a long only investor in this market…
- BofA’s latest Flow Show highlights with actual highlights by me.
- The overt politization of a national security asset in order to buy votes (in this case the SPR) during a time of real and rising global threats, is bad precedence and a dangerous game.
- An updated refresher on average bear markets with and without a recession. We’ll be tipping into a recession next year if the Fed stays on their current course, so focus on the red line (chart via BBG).
- The Tech sector triggered a rare MACD Buy Signal last week, where over 80% tech stocks have had a MACD buy signal within the past 10-days.
This marks only the fifth time this signal has triggered over the past 30+ years.
- This graph shows historical returns over the following month of trading. Tech stocks were higher every time one month later with an average return of 13% (note: this graph shows 15 instances but that’s because these buy thrusts come in multi-day clusters, which I count as single instances).
I’m not saying it’s a good idea to go and buy beaten down tech stocks now. Just including this for context and to keep us openminded to the potential for a large rally, like the one that occurred during the 00’-02’ bear market.
- For tech stocks to rally we’d need to see bonds put in a durable bottom. Something they’ve so far failed to do. Interestingly, positioning is getting very one-sided. The chart below shows the aggregate speculative positioning (OD green line) across all maturities (h/t Cameron Crise). I wouldn’t fade the current trend. It’s parabolic and parabolic moves last longer than most expect. But they also tend to end in violent reversals, so something to keep in mind…
- Smallcaps are cheap, both on a nominal and relative basis. It’s too early to be aggressive but it’s a good time to be bargain hunting and accumulating shares (h/t @MikeZaccardi for the charts).
- Historically, when smallcaps have traded at a forward PE of 10x, they’ve seen double-digit annualized returns over the following decade.
- @quakes99 shared a good thread of charts outlining the long-term bul thesis for Uranium (link here).
- We’re only in the early innings of what’s going to be a broadbased and secular bull market in commodities. The main driver, as is always the case, is the CAPEX Cycle.
- The below list shows the top 20 best performing stocks this year that trade on US exchanges with a marketcap over $2bn. Notice the industries (oil & gas, coal, biotech, copper). That’s called leadership change. What’s outperformed in the last cycle is unlikely to outperform in the next. This list is a good starting point for digging into new cyclical winners.
Thanks for reading.
Stay frosty and keep your head on a swivel.
