Yeah yeah…we all know the differences in the comp spread and relative operating performance. The market knows that too. But LOW will not roll over and play dead. There’s no doubt it is having execution issues and is losing share to Depot as HD focuses heavily on its core. But HD was a year early (2009/10) in reaccelerating both store level capex and SG&A per square foot. Now it is benefitting. LOW’s uptick in investment spending over the past 12 months during a time of weakness in its business (and botched execution) has been particularly painful. Bigger picture, we like this space given the catch-up in deferred maintenance as the housing market continues to suffer. Would we buy either today? No. But the relative trajectory in revenue and margins is likely to turn in LOW’s favor over the next six months. On weakness, that’s where we’d look first.
POSITION: Short Financials (XLF)
There really is no other way to summarize the US Equity market here. It’s bearish. Period.
I’ll be the first to concede that bear markets get immediate-term TRADE oversold (I made that call last Monday in note titled “Short Covering Opportunity” – time stamped 10:47AM on August 8th, 2011).
But, please, don’t confuse immediate-term TRADE oversold as anything other than what that is – immediate-term oversold.
Across our core 3 risk management durations (TRADE/TREND/TAIL), bearish is as bearish does:
- Intermediate-term TREND resistance = 1314
- Long-term TAIL of resistance = 1256
- Immediate-term TRADE resistance = 1214
Like 1192 and 1173, there are multiple short-term downside levels of TRADE support between 1214 and the YTD closing low of 1119 (establish August 8th, 2011), but since most people out there are still saying they are “long-term investors”, they probably don’t care about those. The long-term TAIL is bearish. So, “long-term investors” are probably going to become increasingly bearish too.
Bear markets bounce. This one just did. That’s yesterday’s news.
Keith R. McCullough
Chief Executive Officer
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Keith added JCP to the short side of the ledger in the Hedgeye Virtual Portfolio -- again -- as he continues to manage near-term risk around a very high conviction TREND and TAIL short idea. See our recent Black Book "What Ackmanists Are Missing" for our fundamental view on why there is a meaningful duration mismatch between the storytelling on the Street vs. economic reality.
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