Dirty Dozen - Monday, June 8

Being a great trader is a process. It’s a race with no finish line. The markets are not static. No single style or approach can provide superior results over long periods of time. To continue to outperform, the great traders continue to learn and adapt.  ~Jack Schwager

In this week’s Dirty Dozen [CHART PACK] we look at more signs of STRONG BREADTH, then we take a gander at improving economic surprises and what they may mean. We follow that up with some talk about small-caps and materials outperformance, cover the deep value on offer in Europe, and end with an energy name that has a nice looking tape.

Let’s dive in.

1. Citi’s Economic Surprise Indices (CESI) have been turning up and rebounding from incredibly depressed levels. It’s now positive for the US and APAC region with Europe being the laggard.

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2. Economic prints positively surprising to the upside is typically a bearish bond development. Hence why bonds broke to the downside from their consolidation pattern last week. The chart below shows the strong correlation between the two. The yellow line is the CESI and the blue line is the QoQ% performance of the UST 10yr yield. We could see yields pop here…

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3. Rising yields and a steepening curve typically coincide with outperformance from small caps and value. Which is what we’ve started to see over the last two weeks. This NDR chart shows there’s a lot of mean reversion left to unwind for small-caps. The Russell 2000/1000 hit its most oversold levels on a YoY% basis since July 1999 (chart via @edclissold).

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4. Bear market bottoms have occurred an average of 4-months before recession end dates. This chart from NDR shows small-cap relative to large-cap performance coming out of recessions (chart via @edclissold).

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5. NDR’s model now favors small-caps over large by the most in over 22 months (chart via @edclissold.)

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Disclaimer: All statements are solely opinions and are for educational purposes only.

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