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Squeezy: SP500 Levels, Refreshed

POSITION: no position SPY

 

In this morning’s Early Look note (“Bullish Bears”), I walked through why I thought this morning’s Global Macro Grind was bullish for the immediate-term TRADE duration in US Equities.

 

A market like this (bearish intermediate-term TREND, with resistance = 1320) can get Squeezy; particularly after it gets exhausted on the downside. After 6 consecutive down weeks, we’re probably going to see an up week –but the question remains, up to where? 

  1. TRADE = 1312 – that would be a probable +3.3% Meltup
  2. TREND = 1320 – that would be more than a Meltup, if it were to hold 

I am expecting #1, not #2, for now…

 

The hallmark of a great risk management is being Duration Agnostic. Downside support is now a higher intermediate-term low at 1262.

 

Manage your risk proactively,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Squeezy: SP500 Levels, Refreshed - SP500


TALES OF THE TAPE: WEN, PNRA, CBRL, RUTH, DIN, RRGB, KONA

Notable news items and price action from the restaurant space as well as our fundamental view on select names.

  • WEN was raised to Buy from Neutral at UBS based on upside to SSS estimates in 2H (particularly in 4Q) based on the re-launch of the premium burger.
  • WEN CEO Roland Smith said yesterday that the 2008 combination of Wendy’s and Arby’s has “absolutely not” been a failure.
  • PNRA has launched a $40 million advertising campaign, called “Make Today Better” yesterday.  Chief Marketing Officer Michael Simon called the effort Panera’s “most significant ad campaign to date”.
  • CBRL Biglari Holdings Inc. has reported a 9.1% stake, according to a 13-D filed yesterday. The company plans to communicate with management and members of the Board regarding the business, governance, and future plans of the company.
  • RUTH and DIN gained on accelerating volume yesterday.  RRGB and KONA declined on accelerating volume.

TALES OF THE TAPE: WEN, PNRA, CBRL, RUTH, DIN, RRGB, KONA - stocks 614

 

 

Howard Penney

Managing Director


THE M3: MACAU ECONOMIC GROWTH; TOUR DATA; TAIWAN IVS; RRR

The Macau Metro Monitor, June 14, 2011

 

 

ECONOMY TO GROW BY LOW DOUBLE-DIGIT: TAM Macau Daily Times

Secretary Francis Tam said the Macau economy is likely to experience a low double-digit growth this year.  There are forecasts that call for a slowdown in 3Q, added Tam.  Last year, the MSAR economy grew by 26.2% to MOP 217 BN.  The secretary also acknowledged that yearly inflation – which hit 4.9% in April – is likely to remain high for the foreseeable future, considering the situation in mainland China and worldwide.

 

PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR APRIL 2011 DSEC

Visitor arrivals in package tours decreased by 5.0% YoY to 543,679 in April 2011.  Visitors from Mainland China (408,461), Thailand (12,959) and Japan (9,233) decreased by 4.9%, 14.7% and 45.3% respectively.  Visitors from Taiwan (27,491); Hong Kong (24,718) and Republic of Korea (18,546) increased by 11.9%, 9.4% and 23.5% respectively.

 

Hotels and guest-houses received 675,836 guests in April 2011, up by 1.7% YoY, with the majority coming from Mainland China (53.4% of total) and Hong Kong (20.9%).  The average length of stay remain unchanged YoY at 1.4 nights.  The average occupancy rate of hotels and guest-houses was 84.5%, up by 3.6% points YoY.

 

MAINLAND CONFIRMED INDIVIDUAL TOURISTS SCHEME WITH TAIWAN People's Daily

According to the State Council's Taiwan Affairs Office, a pilot plan allowing Mainland China visitors to Taiwan as individual tourists will commence on June 28, which covers residents from Beijing, Shanghai and Xiamen at the first stage.  Currently, mainlanders are only allowed to visit Taiwan on package tours after the authorities lifted a partial ban in July 2008.

 

CHINA RAISES BANK RESERVE REQUIREMENTS Bloomberg

China's Required Reserve Ratio for banks will be raised to a new high of 21.5%, effective June 20.  Also, China’s producer prices rose 6.8% in May and non-food inflation accelerated to 2.9%, the fastest pace in at least six years.


Daily Trading Ranges

20 Proprietary Risk Ranges

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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - June 14, 2011

 

The three things that matter this morning:

  1. Deflating The Inflation (our Q2 Macro Theme) was big yesterday = CRB Index down -1.1% on oil down hard
  2. Chinese Data for May was rock solid sequentially = Fixed Asset Investment up 40bps sequentially in May to +25.8%
  3. Global Equity Markets stopped going down

 

Bulls are dying for some bullish data to cling to at this point and, if you look hard enough, it's there today - what price do you pay remains the question.  In SP500 points, I say just relax and manage risk around the range (1)

 

Being perma anything won't work in 2011. As we look at today’s set up for the S&P 500, the range is 31 points or -0.94% downside to 1259 and 1.90% upside to 1290.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 614

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -468 (+1452)  
  • VOLUME: NYSE 908.34 (-10.89%)
  • VIX:  19.61 +3.98% YTD PERFORMANCE: +10.48%
  • SPX PUT/CALL RATIO: 1.67 from 1.77 (-6.13%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 19.95
  • 3-MONTH T-BILL YIELD: 0.05%
  • 10-Year: 3.00 from 2.99
  • YIELD CURVE: 2.60 from 2.58 

 

MACRO DATA POINTS:

  • 7:30 a.m.: NFIB Small Business Optimism, est. 90.5
  • 7:45 a.m./8:55 a.m. ICSC/Redbook Weekly Sales
  • 8:30 a.m.: Producer Price Index, est. 0.1%
  • 8:30 a.m.: Retail sales, est. (-0.5%)
  • 10 a.m.: Business inventories, est. 0.9%
  • 11:30 a.m.: U.S. to sell $28b 4-wk bills
  • 2:30 p.m.: Fed Chairman Bernanke speaks at the Committee for a Responsible Federal Budget Annual Conference

WHAT TO WATCH:

  • Nokia and Apple agreed to settle all patent litigation between the companies in a deal that awards a one-off payment and royalties to Nokia
  • BofA “significantly hindered” a federal review of its foreclosures on loans insured by the FHA, U.S. says
  • U.K. inflation held at the fastest pace since October 2008

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Sugar Rising as Thailand Port Congestion Worst in Memory: Freight Markets
  • Michael Coleman’s Trading Company Hires Ex-JPMorgan Coal Trader Chan Bhima
  • Cotton Acres in China Seen Capped as Manufacturing Jobs Lure Farm Workers
  • Record Corn Crop in India May Help Increase Exports, Limiting Global Costs
  • Fees Punish Savers Seeking Hedge-Fund Cachet in Commodities Futures Funds
  • Crude Oil Trades Near One-Month Low on Demand Outlook for China and U.S.
  • Corn Drops for Third Day as Weather Improves, Pre-Export Inspections Fall
  • Copper Climbs for First Day in Three as China Production Maintains Growth
  • Sugar Falls on Reduced Concern About Brazilian Supply; Coffee Prices Drop
  • Gold May Advance on Inflation Concern, Sovereign-Debt Crisis in Europe
  • Violent Protests Increase at Chile’s El Teniente Copper Mine, Codelco Says
  • Chicken Breeders Face Tax-Cut Hawks in U.S. Senate Showdown Over Ethanol
  • Sino-Forest’s Investors Will Question Executives After Stock Plunges 73%

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPE: another dead cat bounce on hope of Keynesian resolve? DAX up +1.6% (we're long); Spain +1.4% (were short); Greek stocks, no dice

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: better than bad; China rallies on "news" that inflation hits a new high; Hang Sang fails to confirm (down -0.05%); India +0.27%
  • China May CPI +5.5% y/y, matching expectations. May PPI +6.8% y/y vs cons +6.5%.
  • Japan April capacity utilization (1.1%) m/m. Revised April industrial output +1.6% m/m vs prelim +1.0%.

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director



Bullish Bears

“I was just saying on that particular play, I would have played it different.”

-Roberto Luongo (Vancouver Canucks)

 

If you’re going to get paid to play this game at the highest level, whether you like it or not, you will be held accountable to both your words and performance. I’m not just talking about the Stanley Cup Playoffs. I am talking about the Future of Finance.

 

Last night in Boston, the Bruins chased Vancouver Canucks’ goalie Roberto Luongo to the bench within the first 10 minutes of the game (to chase de goalie means to pull him from de net – and make him feel shame). At that point, the score was already 3-0 en route to a big Bruins’ Game 6 win. Boston goalie Tim Thomas played the 1st period “differently.”

 

I played against Tim Thomas in college. He was at Vermont. I was at Yale. They were a national powerhouse. We were in the dog house. I’ll never forget coming onto the ice for the warm-up in their barn. I was like a Thunder Bay deer in headlights facing a full student section of kids clanging cow bells and playing some version of the Smurfs song while I tried to pretend they weren’t there.

 

You can pretend your competition isn’t there, but you’ll have a really big problem if they’re really good and Proactively Prepared to beat you. From Boston last night to Vermont in 1995, that’s what winners do – they wake-up every morning expecting to win.

 

I don’t expect to be Bullish inasmuch as I don’t expect to be Bearish. I expect my teammates and I to execute on our research and risk management process to the best of our ability every day. When we fail, we learned. When we win, we expected to.

 

This morning’s economic data and, more importantly, the market’s reaction to it, is bullish:

  1. Chinese Data – Growth Slowed at a SLOWER RATE as Inflation Accelerated at a SLOWER RATE (May data)
  2. Deflating The Inflation (Q2 Hedgeye Macro Theme) – oil prices falling to a 1 month low deflated the CRB Index by 1.1% yesterday
  3. Stock Markets – after 6 consecutive down weeks, around the world, they stopped going down

But can you be a Bullish Bear?

 

Yes We Can. Our risk management task every morning isn’t to be either Bullish or Bearish – it’s to be right.

 

That’s the American (and Canadian) Optimism we’re looking to champion. That’s the winning attitude we can believe in.

 

Are there bearish data points in my notebook this morning? You bet your Madoff there are:

  1. United Kingdom Stagflation – continued in May with Consumer Prices (CPI) remaining in-line with April’s print of +4.5%
  2. Hong Kong Property Bubble Popping – in motion now that HK Industrial Production has dropped to 3.5% (versus 5.7% last quarter)
  3. Spanish/Greek Piggies Don’t Fly – both countries issued more Pig Paper (fiat debt) this morning at higher yields than last auction

But what trumps what? In the aggregate, are these 6 bullish and bearish data points more bullish or bearish? Do you have an investment mandate to be bullish or bearish, regardless? Or are you tasked with neither being a Perma-Bull nor a Perma-Bear?

 

My answers to these questions are already in print. I think this morning’s Global Macro Grind flushes out as bullish as last night’s Bruins win. That doesn’t make me un-Canadian. Neither does it pigeon hole me into not being able to change my mind within the next 24 hours. The only rule in this game is to say what you think – take your position – and be accountable to it.

 

Across our 3 core risk management durations, the Bullish Bear’s view of US Equities from yesterday’s closing price is as follows:

  1. Immediate-term TRADE upside in the SP500 to 1290
  2. Intermediate-term TREND upside in the SP500 to 1320
  3. Long-term TAIL upside in the SP500 to 1377

Wow. Maybe on The Kudlow Report tonight (I’ll be on with Larry at 7PM EST) I’ll pretend I am Don Luskin and only be bullish. Maybe not.

 

Across our 3 core risk management durations, the Bearish Bull’s view of US Equities from yesterday’s closing price is as follows:

  1. Immediate-term TRADE downside in the SP500 to 1259
  2. Intermediate-term TREND downside in the SP500 to 1223
  3. Long-term TAIL downside in the SP500 to 1223

You see, if you are Duration Agnostic, there are two sides to every market debate – and, not surprisingly, two sides to every bid-ask spread across different times and prices. Sometimes durations converge (my intermediate and long-term support levels are the same right now). Sometimes they diverge. Sometimes you should be bullish; sometimes bearish.

 

Sometimes your competition is sleeping. All of the time we need to keep changing our positioning as the market’s time, price, and expectations do. As my great hockey Coach and mentor at Yale, Tim Taylor, taught me – you have to keep moving out there.

 

My immediate term support and resistance ranges for Gold (bought more yesterday), Oil (we remain bearish; Goldman bullish), and the SP500 (we have no long or short position here) are now $1, $97.60-100.03, and 1.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish Bears - Chart of the Day

 

Bullish Bears - Virtual Portfolio


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