Again, Buy ‘Em… [DIRTY DOZEN]

“[Value traps happen’] when you get down toward the lower end of these valuations, value people find them attractive. The trap comes in when there’s a secular change, where the fundamental economics of the business are changing or the industry is changing, and the market is slowly incorporating that into the stock price. So that would be the case over the last several years with newspapers. They are a good example of where historical valuation metrics aren’t working.” ~ Bill Miller

Good morning! In this week’s Dirty Dozen [CHART PACK]  we explain again why it’s time to start adding back risk… we cover the major breadth thrusts that fired, a so bearish it’s bullish sentiment/positioning backdrop, some great monthly charts, and more… 

1. In last week’s Dozen I explained why it was a good time to “Buy ‘em…” and start adding back risk. I argued that we were at a tradeable bottom within a larger sideways vol regime, and we should see a couple of weeks (at least) of upside from here. It was not a popular post, and neither was this tweet the following day. As Walter Deemer likes to say “when it’s time to buy, you won’t want to”. Luckily we don’t go off feelings at MO but rather contextualized data that gives us odds to operate off of within a broader framework — process trumps emotions...

 

2. BofA’s latest Flow Show summary with highlights by me.

 

3. And a new low in the BofA Bull & Bear Indicator… 

 

4. Coupled with a major bullish thrust in the McClellan Oscillator index while the Summation is coming off deeply oversold lows. Time will tell but this is looking a lot like the last three major market bottoms.

 

5. And we saw a round of positive confirming breadth thrusts last week (something we’ve been patiently waiting for). We got three consecutive 80%+ up volume days, > 90% of stocks above their 10dma via NDR (@EdClissold), and we were two days shy from seeing an official Zweig Breadth Thrust fire as well. 

 

6. And this additional color. Not something I typically look at but interesting.

 

7. Smallcap valuations are at their GFC lows… (h/t @WallStJesus)

 

8. And China is opening up again, which will bring an additional bid (not like it’s needed) to oil and energy stocks, which continue to be where most of our book is concentrated.

 

9. Biotech has been in one of its worst bear markets in history. This recent selloff has brought XBI down to its 18’ and 20’ bear market lows. May put in a small reversal bar which puts the odds in favor that this support level holds.

 

10. ClearPoint Neuro Inc, (CLPT) is one of our favorite names in the space. You can find some info on them here. Chart below is a monthly.

 

11. I wrote the other week about the long-term bottom in the EURUSD and it looks like we got lucky in our bottom picking as the EURUSD strongly reversed higher the next day. Looking at the monthly USD pairs, it seems like shorting the greenback will be the trade to make over the next few months. 

Here’s USDBRL on a monthly basis. Clear breakdown from a rectangle. Brazilian equities are historically cheap and the country exports pretty much everything the world is short of.

 

12. Diana Shipping (DSX) has broken out of a 7-year base (chart is a monthly). The company has been buying back shares, it has a strong balance sheet, is seeing solid topline growth, and trades for 5x next year’s earnings. 

Thanks for reading.Stay frosty and keep your head on a swivel.