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The Re-test: SP500 Levels, Refreshed

POSITION: Short Financials (XLF), Long Utilities (XLU)

 

No matter where we go this morning, here we are – right back to the fundamentals. After another very low-volume rally into month-end markups, consensus is being forced to re-calibrate their expectations once again this morning.

 

I think the quote I used earlier this week from Dan Gardner’s book (“Future Babble – Why Expert Predictions Fail and Why We Believe Them Anyway”) sums up where we are right here and now quite concisely: “feeling good about a judgment is a prerequisite to acting on it.”

 

If Global Growth Slowing, tanking US Consumer Confidence, and no jobs isn’t making you feel less good this week than you may have at higher prices, then you really are contrarian!

 

As a reminder, the US stock market is in what we call a Bearish Formation (bearish TRADE, TREND, and TAIL): 

  1. TAIL = 1263
  2. TREND = 1292
  3. TRADE = 1234 

That’s not good.

 

What is good, however, is that I am registering a higher-low of immediate-term TRADE support than I could have flagged for all of August. I’m at 1146 support now (I used to be in the 1086-1108 range), so this is progress.

 

And as we all now, progress is important. Repeating prior policy mistakes in this country is not the answer.

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Re-test: SP500 Levels, Refreshed - SPX


RESTAURANT INDUSTRY EMPLOYMENT UPDATE

Employment data negative for quick service, positive for casual dining.

 

The overall jobs picture this morning was unequivocally negative with Nonfarm Payrolls coming in flat, way below expectations at 0k versus expectations of +68k.  The level of growth in employment among the 20-24 years of age cohort decelerated in August, which is a negative data point for QSR.  July employment growth among this age cohort came in at 1.4%.  The 55-64 years of age cohort saw strong employment growth in August, accelerating to 2.7% year-over-year versus 1.1% in the month prior.

 

Sentiment has clearly become more negative across the board recently, with consumer confidence plummeting in August and sliding home prices moving into the spotlight.  This data point is, on the margin, negative for QSR and positive for casual dining. 

 

RESTAURANT INDUSTRY EMPLOYMENT UPDATE - employment growth by age

 

 

The second chart below shows employment growth in the food service industry.  Hiring continues to be strong on a year-over-year basis but, on the margin, employment growth in both full service and limited service slowed sequentially.  We will continue to monitor this trend closely in the coming months.

 

RESTAURANT INDUSTRY EMPLOYMENT UPDATE - food service employment 92

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst



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THE HBM: WEN, DPZ, CBRL, MSSR

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Notable macro data points, news items, and price action pertaining to the restaurant space.

 

MACRO

 

Consumer

 

The most important macro statistic for the restaurant industry is job growth.  Today, jobs data is a complete bomb.  Payroll employment was flat during the month. Even if Verizon's 45,000 striking workers are added back into the mix, payroll gains were far weaker than was expected. 

 

Subsectors

 

THE HBM: WEN, DPZ, CBRL, MSSR - subsectors fbr

 

 

QUICK SERVICE

 

WEN traded strongly yesterday on the news that Emil Brolick will soon take over as CEO.

 

DPZ CEO Jerry Doyle made an appearance on CNBC yesterday.  Doyle said that cheese prices are in the $1.78-$1.79 range, the NFL strike settlement is positive for his company’s business, and that the company has used cash “efficiently”.

 

 

CASUAL DINING

 

CBRL’s board has unanimously declined the demand to appoint Biglari to the board. The company, according to a press release issued last night, “endeavored to avoid proxy fight, and held numerous discussions with Biglari and offered him the opportunity to appoint two qualified independent directors.

 

MSSR rated “New Buy” at GFI Group

 

THE HBM: WEN, DPZ, CBRL, MSSR - stocks 92

 

 

Howard Penney

Managing Director

            

 

Rory Green

Analyst

 


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - September 2, 2011

 

With the SP500 closing 1 point above its immediate-term TRADE line of 1203 yesterday, this morning’s jobs print in the US becomes very relevant.   We have ZERO edge on what the number will be (the government makes up the birth/death adjustment), but we have a process/ plan post print.

  1. If the SPX breaks and holds below 1203, immediate term TRADE support becomes 1182
  2. On a breach of 1182 and a VIX breakout > 35.40, retest of the 2011 lows is in play
  3. If the SPX draws down and recovers 1203, immediate-term upside to 1234

 

As we look at today’s set up for the S&P 500, the range is 41 points or -1.86% downside to 1182 and 1.54% upside to 1223.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 92

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -1433 (-2334)  
  • VOLUME: NYSE 1017.95 (+19.54%)
  • VIX:  31.82 +0.63% YTD PERFORMANCE: +79.27%
  • SPX PUT/CALL RATIO: 1.78 from 1.40 +27.11%

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 31.93
  • 3-MONTH T-BILL YIELD: 0.02% +0.01%
  • 10-Year: 2.22 from 2.19    
  • YIELD CURVE: 2.03 from 1.99

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Unemployment rate, est. 9.1%, prior 9.1%
  • Change in non-farm payolls, est. 68k, prior 117k
  • 1 p.m.: Baker Hughes rig count

 

WHAT TO WATCH:

  • Bank of America, JP Morgan, other banks may be sued by the U.S. FHFA for misrepresenting quality of mortgage securities during height of housing bubble: NY Times
  • Bank of America told by Fed to show steps it would take if its financial condition worsens: WSJ 
  • BP, Exxon Mobil, others shut almost 6% of Gulf crude output ahead of tropical depression
  • Netflix said Starz walked away from talks on new streaming deal; contract ends next Feb.

COMMODITY/GROWTH EXPECTATION

 

COMMODITIES: big breakout lines in Gold and Silver = $1819 and $41.53

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • China Buries Obama’s Solar-Power Ambitions With $34.4 Billion
  • Gold Gains for Second Day as Equities Drop on Growth Concern
  • Oil Drops Before U.S. Jobs Data; Gulf Rigs Shut as Storm Builds
  • Saudi Oil May Gain as China Refineries Restart: Energy Markets
  • Shanghai Plans Fivefold Increase in Metal Bonded Warehousing
  • Baosteel Group Pays $1.95 Billion for Stake in Niobium Miner
  • Copper Falls for Second Day as Growth Concerns Weigh on Demand
  • Corn Rallies After Biggest Drop in Two Months Spurs Purchases
  • Glencore Proposes Cash Bid Valuing Optimum Coal at $1.2 Billion
  • Gold May Advance on Concern About Slowing Growth, Survey Shows
  • Palm Oil Gains as Widening Discount to Soybean Oil Lures Buyers
  • Ukraine’s Corn Exports Surge Capping Price Rally as U.S. Bakes
  • Australia Wheat Forecast Cut 4 Percent on Dry East, ANZ Says

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPE: broadly lower lead by Greece and Germany down 3.6% and 2.8%, respectively. 
  • Greek Finance Minister denies that EU/IMF talks are suspended, says new cycle of talks will begin on 14-Sept -- Reuters
  • Eurozone July PPI +6.1% y/y vs consensus +6.1% and prior +5.9%; Eurozone July PPI +0.5% m/m vs consensus +0.5% and prior +0.0%

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: mixed last night (Japan and China down 1.2% and 1.1%), but the Philippines (which I am long) was up 0.6% moving to up +1% for September

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director



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