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Risk Ranger: SP500 Levels, Refreshed

POSITION: No Position SPY

 

We are long 2 S&P Sector ETFs (XLP and XLV). After covering our short position in the Financials (XLF), we do not currently have any S&P Sector shorts. What’s implied by our positioning is that we think the SP500 is setting up to rally, again, to another lower-YTD and lower-long-term high. 

  1. Long-term TAIL resistance = 1377
  2. Immediate-term TRADE resistance = 1353
  3. Intermediate-term TREND support = 1320 

What’s interesting here is that I have TRADE and TREND lines of support converging below the markets price. That’s bullish – and convergence like this in my model typically leads to a sharp rally to the upside.

 

Is there a catalyst for the Risk Ranger to register the high-end of the range in the chart below? Big time. A Debt Deal should be imminent. If Congress follows the polls, that is (Rasmussen just registered a New Low: 6% think Congress is doing a good job!). The Pain Trade is still up.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Risk Ranger: SP500 Levels, Refreshed - SPX


THE HBM: JACK, DPZ, SBUX, MCD, CBOU, PEET, SBUX, DNKN, DRI

THE HEDGEYE BREAKFAST MENU

 

MACRO

 

Economic Releases

 

Yesterday, it was reported that the Chicago Fed's national activity index indicates that the U.S. recovery has weakened considerably since April and is at risk of slipping further; improvement in the labor market has ground to a halt.  By contrast, the Texas Manufacturing Outlook was consistent with the weakness and uncertainty of the national economy on the one hand and the relative strength of Texas on the other.  In particular, the Employment outlook picked up significantly last month, which is consistent with our positive bias on JACK.

 

 

Commodities

 

The smallest hay crop in more than 100 years is withering under a record drought in Texas, according to Bloomberg, boosting the cost of livestock feed for dairy farmers and beef producers across the nation.

 

 

Subsectors

 

Restaurant stocks continue to trade softly with the food, beverage and restaurant categories all trading down yesterday.

 

THE HBM: JACK, DPZ, SBUX, MCD, CBOU, PEET, SBUX, DNKN, DRI - subsectors fbr

 

 

QUICK SERVICE

  • DPZ today announced 2Q EPS of $0.40 versus the Street at $0.36.  Domestic same-restaurant sales came in at +4.8% versus +3.0%.
  • SBUX Seattle’s Best Coffee cafes within Borders locations ceased operation late last week as close to 400 remaining bookstores across the country began liquidation sales over the weekend.
  • MCD is announcing plans today to provide a serving of fruit or vegetable with every Happy Meal sold in the U.S., according to the Chicago Tribune.
  • CBOU, PEET, and SBUX traded well yesterday ahead of the DNKN IPO tonight.  I published a note early this morning looking at the bubble in coffee stocks. 
  • COSI traded down 9.2% on accelerating volume.

 

FULL SERVICE

  • DRI’s Red Lobster has launched a new national advertising campaign featuring the “real people of Red Lobster”, employees and others associated with the brand sharing “unscripted” stories about the concept.


THE HBM: JACK, DPZ, SBUX, MCD, CBOU, PEET, SBUX, DNKN, DRI - stocks 726

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


Tipping Points

This note was originally published at 8am on July 21, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“There is an invisible tipping point. When we get there, it’s far too late.”

-Seth Klarman

 

I’ve used this quote from Baupost Group Chief, Seth Klarman, before. When he said it, he was alluding to America. In Europe, I think we’re there.  Some Tipping Points are invisible to many, but crystal clear to Mr. Macro Market. You just have to be humble enough to let him show you the way.

 

For all of you who got this right in 2008, you know exactly what I am talking about. The interconnectedness of Global Macro markets has been clear to you for quite some time now. Considering your portfolio risk from the narrow vantage point of one country and its credit risk is as obsolete as Keynesian Economics.

 

This systemic problem in our industry’s analytics was born in academia and now it thrives in government. These central planners of the world unite and focus on “risks” after they have been priced in. In doing so, they are blinded by what’s coming next.

 

Consider the #1 headline on Bloomberg this morning:

 

MERKEL, SARKOZY TO OUTLINE POSITION ON GREEK DEBT.”

 

Gee, thanks.

 

Meanwhile, as these left leaning Europeans prepare for their 3 hour lunch in Brussels, the rest of the world’s interconnected risk continues to be priced on a tick.

 

From a Chaos Theorists perspective (an alternative to Keynesian dogma), the deepest simplicity that I can achieve in explaining how this works is watching every grain of sand (market data points - including Price, Volume, and Volatility signals) fall onto my screens – one by one. Unless you have a process to contextualize Tipping Points, how will you know which grain of sand will collapse the pile?

 

Hedgeye doesn’t have its feet on the floor earlier than any other firm we compete with for bailouts and giggles. We do it because someone needs to be awake every morning, watching the grains of sand.

 

This morning’s moves in Global Macro are a critical example of what I am ultimately trying to signal – timing:

  1. Intel (US equity market barometer) flags that margins are peaking last night at the close = US FUTURES DOWN
  2. China comes out with a brutal manufacturing PMI print of 48.8 in July (versus 50.1 in June) = ASIA DOWN
  3. Germany then hits the tape with an equally bad PMI print (versus expectations as China’s) = DAX DOWN

There’s obviously a lot of other things going on out there, but the principles of Chaos or Complexity Theory hinge on simplifying what factors have the largest impacts to the ecosystem you are analyzing. US Tech, China, and Germany are large factors.

 

There’s a difference between correlation and causality. The fundamental slowing of economic growth, globally, is causal to markets and the companies that operate within them. Whereas measuring the correlation between these Global Macro data points and market prices is trivial – if you have a process to absorb them:

  1. US Equities are going to re-test intermediate-term TREND line support (1319 SP500) this morning
  2. Chinese Equities had their biggest down day in 3 weeks, closing down -1% at 2765 on the Shanghai Composite
  3. German Equities are breaking their intermediate-term TREND line of 7198 on the DAX

What do any of these things have to do with Greece?

 

Exactly. Nothing. Greece is gone. Caput. Gonzo. Au-revoir.

 

Greek equities have crashed, twice, in the last 2 years and the Greek bond market is illiquid and dark. Europig politicians are not going to be able to do a damn thing to save Greece from themselves. Default and/or restructuring is the only way out.

 

So they may as well move to the crème brule in Brussels today and focus on what really matters to both the EU and the Euro – Germany’s economic slowdown and Spain/Italy bumping up against massive debt maturities in August and September (it’s July). Focusing on Greece today is far too late.

 

My immediate-term support and resistance ranges for Gold (we’re long), Oil (no position), and the SP500 are now $1572-1623, $95.47-99.08, and 1319-1341, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Tipping Points - Chart of the Day

 

Tipping Points - Virtual Portfolio


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THE M3: IMPORTED LABOR; PANSY'S SHUN TAK SHARE; MGM-TAIWAN; INFLATION

The Macau Metro Monitor, July 26, 2011

 

 

OVER 85,000 IMPORTED WORKERS IN MSAR Macau Daily Times

According to the Macau Human Resources Office, in June, the number of non-resident workers totaled 85,273, a total of 1,234 more compared with May.  Mainland China continued to be the main source of imported labor, with 1,000 additional workers in June to 48,741.  The entertainment, gaming and hospitality sectors hired the most foreign workers during the reporting period, absorbing a total of 24,738 people.

 

PANSY HO INCREASES STAKE IN SHUN TAK WSJ

Managing director Pansy Ho bought 36,285,523 shares of Shun Tak from her father at market price on Thursday, raising her stake in the company to 12.67% from 11%.  The purchase is valued at HK$177.4 million (US$22.8 million).  Shun Tak said the share purchase will not have any impact on any aspect of the affairs of the company.

 

MGM CHINA LOOKING TO INVEST IN TAIWAN Macau Business

Pansy Ho said, “The likelihood of [MGM China] investing in Taiwan is pretty high because now is a good time,” in a reference to Taiwan’s recent opening to individual tourists from the mainland.  “The investment plans will target hotels, as well as travel- and service-related businesses,” she said.

 

INFLATION "LIKELY TO INTENSIFY": MONETARY AUTHORITY Macau Business

The Monetary Authority of Macau said that inflation is likely to intensify for the reminder of 2011.  For 2011, it estimates the inflation rate to reach a level slightly above 5.0%.  Inflation increased by 5.13% YoY for the first half of 2011.




American Pride

“The measure of who we are is what we do with what we have.”

-Vince Lombardi

 

This weekend I finished the “heavy book” (Truman) and opted to do what I don’t do enough of – re-read my favorite books. If “When Pride Still Mattered – A Life of Vince Lombardi” can’t get you fired up to lead people in this good life, I don’t know what can.

 

Leadership isn’t what you saw coming out of Washington yesterday. That was a joke. As Lombardi reminds us, “leaders aren’t born, they are made.” And President Obama is learning that lesson the hard way right now – unfortunately, on the job.

 

I’ve written about this for what feels like forever now, but the reality of both the Bush and Obama Administrations is that the American people don’t like either. Americans aren’t stupid. They know who these people are by watching what they do with what they have. Both Bush and Obama had/have awful economic advisors.

 

Back to the Global Macro Grind

 

Last night, after the President of the United States fear-mongered the country that we could face a “deep economic crisis”, the rest of the world’s market participants took his word for it and said ok, we’ll sell more US Dollars on that.

 

Can you imagine the leader of any great team delivering that message to the troops on the week of the one of the biggest games is US history? I can. I’ve seen plenty of losing coaches in my day, and so have you. Obama better wakeup to a winning message – and soon.

 

The good news is that market prices are already discounting political gravity. If you haven’t noticed, professional politicians chase polls and the President’s approval rating won’t be flushed out of the toilet until he makes a decision to get a deal done.

 

Here’s how I see this globally interconnected marketplace discounting Obama bellying up to the bar:

 

1.   US Dollar – yes it was down -1.2% last week and, yes, it’s down on “no deal” already for the week-to-date. But, the US Dollar Index is finally making higher-all-time-lows on selloffs. All-time is a long-time. Obama, this buck stops going down with you.

 

2.   US Treasuries – you know you have basically no stroke with markets when 3 of the “top” central planners of America (Obama, Geithner, and Daley) try to scare the living hell out of the bond market, and Treasury Yields move a beep. Or was it 2 beeps?

 

3.   US Stocks – like Braveheart, US stocks are holding every line of support that matters. Holding our TRADE line of support (1325). Holding our intermediate-term TREND line of support (1319). “Hold… hold…”

 

The People of America are like that. I’m sure Lombardi would agree that our markets are a measure of who we are. We are resilient. We are fighters. And we will not let conflicted and compromised politicians decide our future.

 

This will not be easy. This won’t change the fact that Washington/Wall Street has been wrong on their US GDP Growth estimates by about a half in 2011 either. But this definition of leadership will not continue.

 

America will do what she needs to do with what she has to make sure of that.

 

My immediate-term support and resistance ranges for Gold (sold ours yesterday), Oil (no position), and the SP500 are now $1, $97.90-100.55, and 1, respectively.

 

Best of luck out there today and God Bless America,

KM

 

Keith R. McCullough
Chief Executive Officer

 

American Pride - Chart of the Day

 

American Pride - Virtual Portfolio


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