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Risk Ranger: SP500 Levels, Refreshed

POSITION: no position SPY

 

People can get upset about it; tired of it; frustrated with it – but the market doesn’t care about our feelings. This market is going to continue to confuse buy-and-hold inasmuch as it does short-and-hold. You’ve got to manage your beta risk around the range.

 

Across durations, here are the lines that matter: 

  1. TAIL resistance = intact at 1377
  2. TREND support = intact at 1319
  3. TRADE zone = 1 at of 11AM EST 

Not too bullish. Not too bearish. Just about right.

 

This should suck the perma-bulls in at the high-end of the ranges inasmuch as it inspires the perma-bears to press their shorts on the lows.

 

I have 17 LONGS and 13 SHORTS in the Hedgeye Portfolio and see plenty to do on both sides.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Risk Ranger: SP500 Levels, Refreshed - 1


THE HBM: MCD, RT, BJRI, TAST, COSI, BEEF PRICES

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

 

THE HEDGEYE BREAKFAST MENU

 

MACRO

 

Beef Prices

 

The drought in Texas that we highlighted in our WEEKLY COMMODITY MONITOR on Wednesday is contributing to an increase in beef prices.  As previously highlighted, despite the short-term increase in supply, ultimately the smaller herd size supports prices.  As of July 1, the nation’s inventory of all types of cattle and calves fell to 99.69 million head, down 1.4% from the same date in 2010, according to a Dow Jones Newswires survey of analysts.  That would be the smallest herd for that date since the U.S. Department of Agriculture began compiling a July 1 figure in 1973.  This will likely keep beef prices elevated well into 2012.

 

Jim Robb, the director of the Livestock Marketing Information Center, was quoted by Bloomberg as saying “we are slaughtering animals that are potential productive-breeding animals…They are going into feedlots and beef-production systems. We’re not holding heifers for future breeding herd growth.”  The poor pasture conditions are making it less feasible for farmers to maintain larger herd sizes.

 

 

Subsectors

 

The rally in the consumer space recently has been led by categories that were previously lagging.  Within our universe, and related spaces, food processing has picked up performance-wise and full service restaurants have underperformed. 

 

THE HBM: MCD, RT, BJRI, TAST, COSI, BEEF PRICES - subsector fbr

 

 

QUICK SERVICE

  • MCD reported 2Q earnings this morning.  EPS came in at $1.35 versus $1.28.  Comps for the quarter were: Global +5.6%, US +4.5%, Europe +5.9%, APMEA +5.2%.  In June, comps were: Global +7.7% versus StreetAccount consensus +3.8%, US +6.9% versus consensus +3.3%, Europe +9.1% versus consensus +4.1% and APMEA +4.8% versus +3.3%.  The stock is trading up to all-time highs this morning.  July, according to management, is expected to bring global comparable sales of 4-5%.
  • TAST reported that its Burger King division’s same-restaurant sales for 2Q declined -5.2%.
  • SBUX, MCD, and now Chick-fil-A Inc. will be following the restaurant industry grain Monday when it debuts new steel-cut oatmeal on its breakfast menu.
  • COSI is cooked - reports Q2 system-wide comps (0.2)% vs. Q1 increase of +1.7% Company-owned +0.5% - Franchise-operated (1.3%)

 

 

CASUAL DINING

  • RT reported a horrible 4QFY11; comps came in at -0.1% versus +0.1% consensus.  EPSS came in at $0.25 ex-items versus consensus at $0.31.
  • RT was cut to Underperform from Neutral at BofA.
  • BJRI reported strong 2Q results with EPS coming in at $0.28 versus $0.27.  Comps came in at +6.9% versus consensus +5.3%.  Trading at such a high multiple, the stock is priced for perfection.

 

THE HBM: MCD, RT, BJRI, TAST, COSI, BEEF PRICES - stocks 722

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 


THE M3: MGM COTAI; JUNKET MOVEMENT; JUNE VISITATION; TAIPA FERRY TERMINAL; S'PORE Q2 HOME PRICES

The Macau Metro Monitor, July 22, 2011

 

 

MGM COMPLETES DESIGN PLAN FOR COTAI Macau Daily Times, Macau Business

President of MGM Grand Paradise Grant Bowie said MGM has finished the blueprint for its Cotai project and that it will include non-gaming elements used to complement with the Macau government's standards for an integrated resort hotel.  The applications are still being approved and Bowie said MGM will respect the government's decision.

 

VIP OPERATOR MOVES TO GRAND LISBOA Macau Business

Junket operator Golden Way has moved to Grand Lisboa from Sands Macau.  The company’s marketing manager, Kenneth Cheng, said the new location, in the city centre, was more convenient.  In Grand Lisboa, the junket operator will run 21 VIP gaming tables, more than double of what it ran in Sands Macao.

VISITOR ARRIVALS FOR JUNE 2011 DSEC

Visitor arrivals totaled 2,181,476 in June 2011, up by 14.5% YoY.  Visitors from Mainland China increased by 21.7% YoY to 1,198,754 in June 2011, and the majority came from Guangdong Province, Fujian Province and Zhejiang Province.  Mainland visitors traveling to Macau under the Individual Visit Scheme totaled 465,218, up by 23.2%.

 

THE M3: MGM COTAI; JUNKET MOVEMENT; JUNE VISITATION; TAIPA FERRY TERMINAL; S'PORE Q2 HOME PRICES - macauV

 

TAIPA TEMPORARY FERRY TERMINAL IN NEED TO EXPAND Macau Daily News

The Office for the Development of Infrastructure says the Taipa Temporary Ferry Terminal is in need for expansion in order to turn Macau into a world‐class tourism and leisure center and cater to the continuing increase of tourist arrivals.  The terminal was designed to handle a maximum of 6MM visitors on an annual basis, and visitation had been over 4MM from Jan-May 2011.  The terminal is expected to cover 200,000 square meters, which is four times bigger than the current space.

 

S'PORE PRIVATE HOME PRICES UP 2% IN Q2 Channel News Asia

According to statistics from the Urban Redevelopment Authority (URA), private home prices in Singapore rose 2% QoQ.

 


the macro show

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

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

 

<CHART8>

 

 

 

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


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%
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