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Sarkozy/Merkel Meeting Leads Markets Lower

HD/LOW: Mind The Sentiment


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.

HD/LOW: Mind The Sentiment - 8 16 2011 12 52 41 PM

HD/LOW: Mind The Sentiment - 8 16 2011 12 53 31 PM

HD/LOW: Mind The Sentiment - 8 16 2011 12 54 19 PM

HD/LOW: Mind The Sentiment - 8 16 2011 12 54 57 PM



Bearish: SP500 Levels, Refreshed

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: 

  1. Intermediate-term TREND resistance = 1314
  2. Long-term TAIL of resistance = 1256
  3. 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


Bearish: SP500 Levels, Refreshed - 1

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JCP: Shorting Again

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.


JCP: Shorting Again - photo








The ICSC chain store sales index posted its third straight decline, falling 1.5% in the latest week. Year-over-year growth slowed to 3.5%, its lowest level in six weeks. Its becoming more apparent that the stock market volatility may be impacting consumer behavior more than the potential benefit from lower gasoline prices.





Gasoline prices have slumped in August to-date after gaining 4.4% in July.  Concerns surrounding slowing economic growth are likely weighing on oil prices.


THE HBM: SBUX, MCD, DIN - gas prices





We’ve been highlighting the Food Processors group as a beaten-down category that will benefit as commodity inflation becomes less of a headwind.  Over the past day and week, the subsector has outperformed other food, beverage, and restaurant peers.


THE HBM: SBUX, MCD, DIN - subsectors fbr




  • SBUX Via ready brew has been expanded to six additional countries, according to a press release out this morning.  The product is now available to all Starbucks locations in Asia.
  • MCD is rated as more healthful than Subway by its most influential, social-media-connected patrons, according to Nations Restaurant News.



  • Bar and Grill led the way yesterday. DIN outperformed, gaining 7.4% on steady volume.

THE HBM: SBUX, MCD, DIN - stocks 816




Howard Penney

Managing Director


Rory Green


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