“I am very open-minded. I am willing to take in information that is difficult to accept emotionally, but which I still recognize to be true.” ~ Michael Marcus

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In this week’s Dirty Dozen [CHART PACK] we discuss high-trend fragility mixed with supportive LT positioning. Walk through potential dangers lurking in record-low correlations, a bullish breakout in AUDUSD and the Nikkei. And end with a look at BTC along with a PGM pitch, plus more… 

1. As we wrote last week, and the week(s) before that… the trend is your friend until it bends and this trend remains up. 

2. Our Market Internals Aggregator still hasn’t triggered a sell signal and our favorite internal, LQD/IEF, continues to chop above the red zone that a move below would give us pause. 

3. However, our Trend Fragility indicator, which is a composite of short-term sentiment and positioning data, crossed above 90% last week giving us a signal of caution. High-trend fragility is a condition but not a catalyst for a top. This means we should pay closer attention to the internals and the tape. 

4. Our preferred gauge of longer-term sentiment/positioning is the BofA Bull & Bear indicator. And this one is hardly above neutral, which tells us this primary trend has room to run before the conditions are set for a broader top. 

 
5. BBG’s Simon White shared these two charts of caution which are worth filing away. The first shows that both the cboe’s 1-year S&P implied correlation index (white) and 1-year realized correlation for the S&P (blue) are plumbing new lows, with similar action last seen in the lead-up to the 18’ “Volmageddon” event.

6. And the second chart shows short interest in the SPY is also plumbing new lows. Similar to high Trend Fragility, these are conditions but not catalysts for a market turn.

7. AUDUSD broke out to the upside of its 1 ½ month rectangle pattern. 

8. AUDUSD’s yield spread is negative but its oscillator has been picking up to the upside and is supportive of this bullish breakout. 

9. The Nikkei saw a new weekly closing high last Friday, holding the breakout we talked about last week. We should expect to see more bullish follow-through over the coming days and weeks. 

10. Both Bitoin (BITCOMP) and Ethereum (ETH-X) have been on the ropes for the past few weeks, which is strange considering its strong historical correlation to the Qs, which are at all-time highs. I’ve read several theories as to the reason behind the poor performance, but none are too convincing. Regardless, the sentiment backdrop has finally reset with Sentix’s TD Index falling into buy territory.

11. BTCUSD has put in four consecutive bear bars and is now at its lower weekly Bollinger Band. We’ll likely need to see a double bottom on the weekly and daily charts before this bull trend can get going again. We’ll be looking for that reversal as an opportunity to try to get long. Until then, we’re on the sidelines and watching.

 
12. We’ve been writing on the PGM market quite a bit since the start of the year. It’s a forgotten market that has been nailed to the floor by a narrative that looks increasingly overcooked, if not completely wrong. Brandon (MO’s value guy) pitched Sibayne-Stillwater LTD (SBSW), a large PGM play, to our Collective back in February and has been putting out regular updates since. Here’s a clip from his report. 

The uranium asset alone is worth more than the entire enterprise value of the company.

So you’re effectively getting all of this for free:

➢A biz that’s generated $4.5B in cumulative FCF and paid $2.2B in dividends
➢$52Bin PGM reserves (assuming $900/oz basket PGM price)
➢$19Bin gold reserves (assuming a $1,900/oz gold price)

The stock is approaching all-time lows in what is likely a cyclical bottom in its end markets. There’s zero balance sheet risk, and management has bought shares over the past year.

I have no idea when the bear market in PGMs will end.

But I know that SBSW has a world-class management team that’s delivered decades of consistent profitability and robust cash flow and sits on an asset base worth ~30x the current market price.

Thanks for reading.

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