MorningWord 1/26/16: DUNG Ho

by Dan January 26, 2016 9:44 am • Commentary

No He didn’t.  My buddy Brian Kelly put it out there for you this morning on The Ticker District:

Introducing the D.U.N.G. Stocks

Deutsche Bank, Union Pacific, Nabors, and General Motors.

Street Cred: Represent an economically sensitive sector
Trade like… well… dung.


Each of these companies can be seen as bellwethers for their respective industries and the global economy.


If the world economy is as cheery as FANG stocks suggest, then the DUNG stocks are massively undervalued. On the other hand, if the DUNG stocks represent the true state of the global economy the FANG stocks are a big short.

One may be inclined to go long of DUNG and short of FANG to play the divergent signals from these stocks.


BK just lays it out for y’all to play it out.

Is BK Cherry picking some fairly poor performing bank, transport, energy and industrial stocks. I think not.  The XLF (the financial select etf) is down 19% from its 52 week and multi-year highs made in July, the IYT (the iShares Transportation etf) is down 28% from its 52 week and multi-year highs made last February, the XLE, (the Energy Select etf) is down 36% from its 52 week highs made last May and industrial stocks, the XLI (the industrial stock etf) is down 17% from its 52 week highs, this VS the S&P 500 (SPX) which is down only 12% from its all time highs made in May and down 8% on the year.
Which brings me back to FANG, why is the broad market of large cap stocks acting better than many of its very economically sensitive sectors?  Plain and simple, FANG,  Microsoft (MSFT), AT&T, Verizon, and some other defensive stocks act, well defensive, showing relative strength in the current environment, and are down much less than the sectors listed above from their highs (all top 20 holdings in the SPX).
As an aside, to rehash a post from last week (MorningWord 1/19/16: Bank Stocks – The Meh, the Bad and the Ugly), the performance of the very recently loved U.S. bank stocks is telling you some. I am not sure what, but it is certainly something.  When you consider Citigroup (C) and Goldman Sachs (GS) just made a new 52 week low yesterday, down 30% and 35% respectively from their 52 week highs. Something is going on here that you and I are not privy to.