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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - July 22, 2011

 

Funny things happen to markets when they go bullish TRADE and TREND in our model. That's been the SP500's signal since recovering TREND line support of 1319 this week.  We have been waiting to re-short the SPY - and why we waited to re-short the Financials (XLF) yesterday.  As we look at today’s set up for the S&P 500, the range is 32 points or -1.85% downside to 1319 and 0.54% upside to 1351.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 722

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: +1855 (+1518)  
  • VOLUME: NYSE 969.18 (+21.72%)
  • VIX:  17.56 -8.01% YTD PERFORMANCE: -1.07%
  • SPX PUT/CALL RATIO: 1.16 from 1.98 (-41.13%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 21.75
  • 3-MONTH T-BILL YIELD: 0.05% +0.03%
  • 10-Year: 3.03 from 2.96  
  • YIELD CURVE: 2.63 from 2.56

MACRO DATA POINTS:

  • 10 a.m.: State unemployment data released
  • 1 p.m.: Baker Hughes rig count

WHAT TO WATCH:

  • President Obama and House Speaker Boehner press for a broad agreement to boost the debt limit while cutting spending by trillions of dollars and overhauling the tax code
  • NFL owners approve 10-yr labor pact, await player vote
  • Borders Group can start liquidating stores starting today

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Gold Falls a Second Day in London as Europe Debt Concern Eases
  • Copper May Rise on Reduced European Debt Concern, Mine Strike
  • Silver May Jump to $100, Citigroup Says: Technical Analysis
  • Sugar Heads for Fourth Weekly Gain on Tight Supply; Coffee Rises
  • Corn Trims Weekly Loss on Concern Dryness May Hurt U.S. Yields
  • Copper May Fall on Indications of Ample Supplies, Survey Shows
  • Beef Prices Seen Rising to Record as U.S. Cattle Herd Shrinks
  • China, Russia Cleared to Explore Pacific Seabed for Minerals
  • Posco Profit Rises on Steel Demand Recovery, Higher Prices
  • Mineral-Rich, People-Poor Mongolia Prepares for Flood of Money
  • European Commodity Day Ahead: Miners Strike at Escondida Mine
  • Raw Sugar May Fall Next Week on Climbing Supplies, Survey Says
  • Gold May Gain on U.S., European Debt Concerns, Survey Shows

CURRENCIES

  • EUR/USD - the intermediate-term TREND line of resistance for the Euro ($1.43) being tested and tried aggressively; if it fails here (and it should because the Europeans aren't going to have three hour bailout lunches every day next week - watch out below!

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPEAN SQUEEZE - there's no other way to describe what just happened in everything Italian, Spanish, or Greek; critically however, the TREND Lines for the IBEX, MIB, and ATG Indices are 10405, 20889, and 1346 - all remain decidedly bearish

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: excellent session for Asian stocks to end the week with HK, KOSPI, and Sensex breaking out above critical lines of resistance.

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

 

Howard Penney

Managing Director



Exceptional Day

“The ignorant man marvels at the exceptional.”

-George D. Boardman

 

George Boardman was an accomplished American man from Maine. Graduating in 1822, he was Colby College’s first graduate. He had exceptional success as a global missionary.

 

Most of the people I know who accomplish great things in this good life don’t marvel at their accomplishments. They wake up every morning expecting it of themselves. They also expect adversity. In fact, most of them can’t live without it.

 

Yesterday was an Exceptional Day for Europe. I, for one, got royally squeezed in my European shorts by it. After going through the wringer on plenty of these centrally planned short squeezes since 2008, I’ve stopped marveling at them. This is what the Fiat Fools do. Whether it was TARP in 2008 or what you saw yesterday, short-term volatility only perpetuates the long-term problem.

 

Members of the European Keynesian Kingdom (EKK) emerged from their 3 hour lunch yesterday with a statement that Greece needed an “exceptional and unique solution.”

 

Then, they offered the bankrupt nation $229 BILLION in new aid (~75% of GDP!)…

 

Then, they spent the rest of the day gloating about their short-term political success…

 

That’s what professional politicians promising the arrest of gravity do.

 

Germany’s leader of Short-Termism, Angela Merkel, emerged from the meetings in Brussels proclaiming her mystery of faith saying: “I am satisfied with the outcome because the euro countries showed today that we are up to the challenge, we can take action.”

 

True, Mrs Merkel – for a day. But what shall you do tomorrow? Another European summit? How about next week? Any plans for August?

 

In all things risk management tomorrow starts today. Rather than marveling at your wins or loses, you’re job is to put on the trades today that will position you to not lose money tomorrow. Being awestruck by an exceptional market move can freeze you. Don’t let that happen. Out of sight, out of mind – onto the next.

 

My short-term performance problem in Europe yesterday aside, we had a great day on the long side of everything we’re long in US Equities. Covering my short position in the SP500 on July 5thhas allowed me to broaden my horizons and move to our most invested position in Global Macro for 2011 YTD (drawing down my Cash position to 43%).

 

What that doesn’t mean is that I should be marveling at those gains. Given our Q3 Macro Theme of “Risk Ranger”, I should be selling some of my gross long exposure in the US today and adding to my short exposures in Europe. The core tenant of the Risk Ranger theme is implied in the name – manage your risk within proactively predictable ranges of market prices.

 

So let’s do that – in Global Equities here are the intermediate-term TREND ranges we plan to use in Q3, until the plan changes:

  1. USA – SP500 range of 1
  2. CHINA – Shanghai Composite range of 2
  3. JAPAN – Nikkei range of 97
  4. INDIA – BSE Sensex range of 17611-19409
  5. GERMANY - DAX range of 7075-7451
  6. SPAIN - IBEX range of 95
  7. ITALY – MIB range of 179
  8. GREECE – ATG range of 1151-1346
  9. BRAZIL – Bovespa range of 589
  10. CANADA – TSE range of 12811-13765

That’s it. There’s nothing exceptional about today or how we are going to manage risk around it. We have our intermediate-term strategy and, as we whip around both the US Debt Ceiling debate and European Sovereign Debt Crisis, we’re sticking to it. As you can see, not 1 of the top-side’s in our intermediate-term TREND ranges was violated to the upside yesterday.

 

My immediate-term TRADE ranges (different duration than the TREND) for Gold (we’re long, and we bought Silver yesterday too), Oil (no position), and the SP500 (no position) are now $1, $97.21-99.76, and 1, respectively.

 

Enjoy the storytelling of the Fiat Fools and, of course, an exceptional weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Exceptional Day - Chart of the Day

 

Exceptional Day - Virtual Portfolio


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BJRI: STRONG QUARTER BUT PRICED TO PERFECTION

BJ’s posted in line results but, at this multiple, the BJRI growth model is priced to perfection.

 

BJRI comps beat consensus at +6.9% versus +5.3%.  In our preview note we had highlighted the sequential strength of California Sales Tax Receipts and strong intra-quarter to date Knapp Track trends as supportive of BJRI posting a strong comp this quarter.  Costs were effectively managed during the quarter thanks largely to strong same-store sales growth.

 

In terms of outlook, the company is lapping more difficult compares in the back half of the year from a comp perspective.  In addition, the amount of price that the company is currently planning on taking through the third and fourth quarters is 2% versus the 3% plus during the first half of the year.  Importantly, 80% of the company’s food costs are locked and COGS as a percentage of sales are expected to be 25%, roughly, for the remainder of 2011.

 

In terms of new unit openings, the company is opening as many as four new restaurants in Q3, one of which is open already in Texas.  Additionally three to four openings are anticipated in Q4.   Restaurant opening costs are expected to be $500k per unit.  The company remains focused on growth, rather than dividends or any other use of cash.

 

The company faces a much tougher compare in the third quarter from both a same-restaurant sales and margin perspective.  At 17x EV/EBITDA, expectations are high.

 

BJRI: STRONG QUARTER BUT PRICED TO PERFECTION - BJRI pod 1

 

BJRI: STRONG QUARTER BUT PRICED TO PERFECTION - bjri quad

 

 

Howard Penney

Managing Director

 

 

Rory Green

Analyst


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