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Bearish: SP500 Levels, Refreshed

POSITION: Short SPY

 

It’s hard to believe, but the SP500 is vying for its 2nd consecutive down day for the 1st time in December. That said, it’s not doing so without a fight. Despite the VIX breaking out above our immediate-term TRADE line of 16.82 today, the SP500 is holding our immediate-term TRADE line of support at 1248.

 

In order for the SP500 to close in the red for 3 consecutive down days, we’ll likely need to see 1248 violated on the downside. If that were to occur, I don’t see any meaningful support down to the 1218 level. Ultimately, if you’re short the US stock market here, that’s what you should be playing for in the immediate term. The bulls are as complacent as they’ve been since April, and they will not sell until they have to.

 

In terms of upside resistance, up at 1263 I’m still registering higher-highs versus the prior YTD closing high of 1258. That’s a bullish risk management signal and so is holding 1248, until it doesn’t.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bearish: SP500 Levels, Refreshed - spTT


MACAU MARKET SHARE AS OF DEC 26TH

Total gaming revenues for December trending between HK$17.5-18.0 billion

 

 

Macau gaming revenues decelerated a touch in the past week.  Based on the current run rate of HK$570 million in table revenue per day, down from HK$585 through the 20th, we are now projecting total gaming revenues (including slots) of HK$17.5-18.0 billion.  That level of revenues represents 59-64% growth over last year.  As always, our estimates take into account the number of weekend and weekdays and for December, only 30 days are counted.  Note that New Year’s Eve is included in the January number.

 

Below are the market shares.  LVS lost another half a point since our last update while SJM gained.

 

MACAU MARKET SHARE AS OF DEC 26TH - macau1


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - December 27, 2010


As we look at today’s set up for the S&P 500, the range is 16 points or -0.86% downside to 1246 and 0.42% upside to 1262.  Equity futures continue to trend below fair value as the rate increases out of China over the weekend are contributing to heightened tightening concerns following a similar move by Russia (only deposit rates) on the 24th.

 

Commodities are showing a mixed reaction to the hikes as the prospect of slower economic growth weighs against the likelihood that the rate increases will continue to pressure the dollar - gold has reversed modest early weakness and is slightly higher, while crude has given back early gains and is now slightly lower.

 

Little activity on the corporate and economic calendars and little is anticipated throughout the week.

  • Amkor Technology (AMKR) will redeem all $100m of its 6.25% convertible notes from Chairman James J. Kim and his family.
  • Chipotle Mexican Grill (CMG), BJ’s Restaurants (BJRI), Panera Bread (PNRA) and Red Robin Gourmet Burgers (RRGB), may be poised to decline 20% or more if “aggressive” 2011 earnings expectations aren’t met, Barron’s reported, citing analysts.
  • Cisco Systems (CSCO) may gain as demand for the equipment grows and the company initiates a dividend, Barron’s reported.
  • Dean Foods (DF) settled an antitrust lawsuit with Northeast Dairy Farmers
  • Goldman Sachs (GS) said it may grant bonuses that depend on future earnings in addition to stock performance amid pressure from regulators to design pay packages for top employees that would discourage excessive risk-taking.
  • Mylan (MYL) agreed to pay $65m to settle a lawsuit from the U.S. government and Texas related to Medicaid reimbursements
  • Netflix (NFLX) may fall as higher charges for acquiring movies hurts profitability, Barron’s reported.
  • Sierra Wireless (SWIR) may rise as growth in 4G and other mobile devices boosts demand for its technology, Barron’s said
  • WSJ is negative on MCD

PERFORMANCE

  • One day: Dow +0.12%, S&P (0.16%), Nasdaq (0.22%), Russell (0.21%)
  • Last Week: Dow +0.72%, S&P +0.28%, Nasdaq +0.21%, Russell +0.34%
  • Month-to-date: Dow +5.16%, S&P +6.46%, Nasdaq +6.70%, Russell +8.52%
  • Quarter-to-date: Dow +7.28%, S&P +10.13%, Nasdaq +12.54%, Russell +16.69%
  • Year-to-date: Dow +10.98%, S&P +12.70%, Nasdaq +17.47%, Russell +26.15%
  • Sector Performance: Materials +0.36%, Energy +0.28%, Utilities +0.06%, Healthcare +0.00%, Consumer Staples +0.04%, Tech (0.17%), Industrials (0.22%), Consumer Discretionary (0.42%), and Financials (0.72%)          

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -119 (-797)  
  • VOLUME: NYSE 615.47 (-21.52%)
  • VIX:  16.47 +6.60% YTD PERFORMANCE: -24.03%
  • SPX PUT/CALL RATIO: 2.75 from 1.54 (+78.64%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 17.30 0.203 (1.187%)
  • 3-MONTH T-BILL YIELD: 0.14%  
  • YIELD CURVE: 2.74 from 2.75

COMMODITY/GROWTH EXPECTATION:

  • CRB: 329.38 +0.39% (up 1.81% last week)
  • Oil: 91.51 +1.14%  (up 3.28% last week)
  • COPPER: 425.85 -0.39% (up +2.39% last week)
  • GOLD: 1,383.72 +0.32% (up +0.88% last week)

CURRENCIES:

  • EURO: 1.3122 +0.10% (down -0.50% last week)
  • DOLLAR: 80.474 -0.03% ( up +0.13% last week)

OVERSEAS MARKETS:

EUROPEAN MARKETS:

  • European Markets: FTSE 100: closed; DAX: (1.28%); CAC 40: (1.11%)
  • In thin trading, Europe is weaker this morning, following declines in Asia; following the December 25th surprise rate hike in China.
  • Also on December 24th Russia’s decision to charge more on ruble deposits, another move to cool inflation, also damped market sentiment.
  • The UK is closed until 29-Dec.
  • On fears of tightening policies, car-makers are trading lower as people take profits for 2010

ASIAN MARKTES:

  • Asian Markets: Nikkei +0.75%; Hang Seng (closed); Shanghai Composite (1.9%)
  • Asian markets started higher today, as participants felt China’s raising interest rates had already been priced in, but they finished mixed.
  • Commodities fell on the rate hike, but quickly pared their losses.
  • In the lowest trading value since the first trading day of the year, export-linked shares led Japan to a modest gain up 0.75%.
  • Taiwan edged up 0.35%. Shin Kong Financial jumped 6% on expectations, leading financials higher on expectations that Taiwan’s central bank will follow China’s rate hike with one of its own.
  • South Korea fell 0.37% - car-makers fell 3-4% on Beijing’s limits for new car registrations announced last week, as well as the fear that China’s higher interest rates will reduce demand for new cars. Shippers fell 2-5% on a lower Baltic Dry Index. Banks rose, since China’s rate increase means South Korea may follow suit to combat inflation.
  • China rose in the morning on the thought that uncertainty about policymakers’ next move had now been cleared up, but dropped in afternoon trading as property, financial, and energy shares got dumped.
  • Hong Kong, Australia, and New Zealand were closed for Christmas/Boxing Day.
  • Japan November corporate services price index (1.1%) y/y, +0.1% m/m. November housing starts +6.8% y/y vs cons +4.9%.

THE HEDGEYE DAILY OUTLOOK - setup1

THE HEDGEYE DAILY OUTLOOK - SP500 DEC 27


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


The Calm and The Storm

“They sicken of the calm, who know the storm.”

-Dorothy Parker

 

While it’s tempting for a man with an Arctic Cat Pantera snowmobile parked outside his front door to poke fun at Americans wearing dress shoes in NYC this morning, I’ll just roll with a quote from a self proclaimed “wisecracker” poet from New Jersey. Dottie Parker was a beauty.

 

Whether you are observing global financial markets from the Big Lake they call Gitche Gumee this morning or from a window on Madison Avenue, you’ll find that plenty has changed in the last 72 hours:

  1. China raised interest rates.
  2. American shoppers have been grounded on the East Coast.
  3. Canada beat Russia 6-3 at the World Junior Hockey Championships in Buffalo.

Now, some things, like Canadian demand for gold on ice, are expected. Other things, like China funding deficit-financed American hopes for a continued stock market rally, aren’t…

 

In fact, China’s Premier, Wen Jiabao, made an important statement to China’s citizenry on Christmas Day that “inflation expectations are far more dire than inflation itself.” FDR-esque.

 

When it comes to the global inflation on your screens this morning, China’s leadership using the word “dire” wasn’t misrepresented. If you don’t want to use the all-time high price for something like copper (up another +2.4% last week to $4.24/lb) as a leading indicator for inflation, just use the price moves in the CRB Commodities basket (19 different commodities) and look at what they’ve done across the following 3 durations:

  1. Weekly = +2.8% week-over-week (last week)
  2. Monthly = +6.5% for the month-to-date (December)
  3. Quarterly = +15.5% for the quarter-to-date (Q410)

The word “expectations” wasn’t misused either. As Shakespeare said, “expectations are the root of all heartache” and I have no reason to believe that the last price of a commodity that represents a large part of a human being’s buying power isn’t the same.

 

Whether it’s the price to warm your home in Connecticut (oil $91.34/barrel this morning is trading at a 26-month high) or the price to feed your family in Asia this morning, the Chinese aren’t sitting on their hands while the US Federal Reserve opts to Quantitatively Guess (QG) about how this all ends.

 

While He Who Sees No Inflation (Bernanke) does his best to extend and pretend the Fiat Fool experiment, the calm (US stock market investor complacency) that’s come before every emerging market storm (inflation) is finally rearing its ugly head.

 

Before you get a bull to try to tell me that this storm is actually great for US “growth” let’s look at what effect the force majeure of China tightening interest rates has had on the Shanghai Composite Index:

  1. Down -1.9% overnight to 2,781
  2. Down for 7 out of the last 8 trading sessions
  3. Down -15.1% for 2010 to-date

Again, if you’re one of the bulls that’s in the US “growth” is back camp and you’re willing to tell me that Chinese growth slowing as inflation accelerates plays no part in your global risk management model, I don’t know what to say in response other than good luck in the New Year with that…

 

In US equity market action, the low-volume and low-volatility calm may very well be a reality for revisionist stock market historians, but the break-downs in US Treasury and emerging debt markets look eerily similar all of a sudden. They look like they are both staring into the same storm of global inflation.

 

In the eye of the NYC storm this morning, UST yields continue to breakout to the upside with 2-year and 10-year yields hitting 0.67% and 3.44%, respectively. If the bulls want to tell me higher-highs in yields are “growth” signals this morning, I’ll just call that out for what it is – a smoke signal that The Calm and The Storm of Wall Street story-telling remains.

 

My immediate term TRADE lines of support and resistance for the SP500 are now 1246 and 1262, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Calm and The Storm - BlizELL


WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 1 of 10 improved / 5 out of 10 worsened / 5 of 10 unchanged
  • Intermediate-term (MoM): Negative / 3 of 10 improved / 4 of 10 worsened / 4 of 10 unchanged
  • Long-term (150 DMA): Negative / 1 of 10 improved / 5 of 10 worsened / 4 of 10 unchanged / 1 of 10 n/a

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - summary table

 

1. US Financials CDS Monitor – Swaps were mostly negative across domestic financials last week, widening for 20 of the 28 reference entities and tightening for the other 8.

Tightened the most vs last week: SLM, MET, PRU

Widened the most vs last week: TRV, MBI, AGO

Tightened the most vs last month: SLM, MET, PRU

Widened the most vs last month: ACE, CB, TRV

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - us cds

 

2. European Financials CDS Monitor – In Europe, banks swaps were almost universally worse.  Swaps widened for 38 of the 39 reference entities.

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - euro cds

 

3. Sovereign CDS – Sovereign CDS widened out by 26 bps week over week with the greatest widening occurring in Italy (30 bps wider).

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell very slightly last week, closing at 8.36 on Thursday.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index hit another new high, rising 4 points to close at 1568.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - lev loan

 

6. TED Spread Monitor – The TED spread fell back to 17.1.

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose half a point, closing at 26.4 on Thursday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose sharply, ending the week 28 bps above a week ago and just 10 bps off of their crisis-level highs in May.

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads increased last week, closing at 208 bps, 10 bps higher than a week prior.     

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - markit

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index fell 23 points to close at 177, bringing the index to its lowest level since July.    

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - baltic dry

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened 7.5 bps, falling to 274 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - 2 10 spread

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.9% upside to TRADE resistance, 1.4% downside to TRADE support. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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