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Bears Bounce: SP500 Levels, Refreshed

POSITION: Long Utilities (XLU), Short Industrials (XLI)

 

The beauty of bounces, particularly Bear Bounces, is that you get to re-short your shorts and sell some longs. When I was on CNBC yesterday (210PM EST), the SP500 was at 1137. Now, 23 hours later, it’s 34 points (+3%) higher. That’s a big move.

 

Across our risk management durations, here are the 3 lines that matter to me right now: 

  1. 1265 = long-term TAIL resistance
  2. 1174 = immediate-term TRADE resistance
  3. 1138 = immediate-term TRADE support

In terms of S&P positions, I only had longs going into yesterday’s close. That’s the best I can do to express what was a Short Covering Opportunity. This morning, I sold our Healthcare (XLV) long and re-shorted Industrials (XLI) as 1174 was not violated on the upside.

 

I started the day with 14 LONGS and 6 SHORTS. Now I have 12 LONGS and 8 SHORTS.

 

Managing your risk around proactively predictable ranges remains critical.

 

Let the market tell you what to do,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bears Bounce: SP500 Levels, Refreshed - SPX


(REVISED) PENN: TRADE UPDATE

Please disregard previous email.

 

 

Today, Keith shorted PENN in the Hedgeye Virtual Portfolio at $36.40.  According to his model, PENN currently has TRADE resistance at $37.54 and TREND resistance at $40.03.  

 

As we mentioned in our notes last week (REGIONALS ROLLING [OVER], (9/8/11); REGIONALS: SHOW ME THE GROWTH, MO (9/13/11)) the regional gaming market revenues for August slowed down in some markets and declined in others.  We saw a similar bearish trend in July.  A sluggish domestic environment characterized by weak housing and high unemployment has certainly affected the US consumer in those two months and it should continue into September.

 

PENN is our top short in the regionals space given its exposure to many of the underperforming markets (IL, IN, PA) and relatively more downside to its trough valuation in March 2009.  We certainly don't see the quarterly upside for Q2 that the investors have grown accustomed to and estimates may actually need to come down.  While PENN is a fine company with solid management, the sell side is overly bullish on the name in our opinion.

 

(REVISED) PENN: TRADE UPDATE - PENN



PENN: TRADE UPDATE

Keith shorted PENN in the Hedgeye Virtual Portfolio.  

 

 

Today, Keith shorted PENN in the Hedgeye Virtual Portfolio at $36.40.  According to his model, PENN currently has TRADE resistance at $37.54 and TREND resistance at $40.03.  

 

As we mentioned in our notes last week (REGIONALS ROLLING [OVER], (9/8/11); REGIONALS: SHOW ME THE GROWTH, MO (9/13/11)) the regional gaming market revenues for August slowed down in some markets and declined in others.  We saw a similar bearish trend in July.  A sluggish domestic environment characterized by weak housing and high unemployment has certainly affected the US consumer in those two months and it should continue into September.

 

PENN is our top short in the regionals space given its exposure to many of the underperforming markets (IL, IN, PA) and relatively more downside to its trough valuation in March 2009.  We certainly don't see the quarterly upside for Q2 that the investors have grown accustomed to and estimates may actually need to come down.  While PENN is a fine company with solid management, the sell side is overly bullish on the name in our opinion.

 

PENN: TRADE UPDATE - PENN


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Former CNBC Executive Joins Hedgeye

Hedgeye Risk Management, the leading real-time investment research firm, today announced that Jeremy Pink, former Senior Vice-President, Business News at CNBC, has joined the firm as a Managing Director to lead their mass-market product and media efforts.
 
“We’re excited about having a distinguished executive on our team.  Jeremy shares our vision for redefining the financial media space; the depth and breadth of his experience will help accelerate building out that aspect of our business,” said Keith McCullough, Founder and CEO of Hedgeye Risk Management.   
 
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Hedgeye is pushing its resources into building its mass-market business with a real-time stock alerts product and daily newsletter to start.  Mr. Pink will be developing more subscription products targeted at this market segment with brokerage accounts, half of who don’t trade at all and an over-whelming majority who trade between just 1-10 times per year.  Hedgeye’s value proposition around real-time risk management and its principles of transparency, accountability and trust, give it confidence that retail investors will inevitably subscribe and become more active in managing their own portfolios.

 
 
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LIZ: Black Book Available

 

Our LIZ Black Book is now available...

 

We think that LIZ has more positive asymmetric factors than nearly any other story we can find in retail today. Yes, we know it’s a small, ugly, financially and operationally-levered story with a horrific track record in hitting expectations and in corporate governance. But trust us, that’s the consensus call.

 

This is not simply a call on improved operational performance or a simple divestiture. But rather the culmination of changes that have greatly reduced the asset intensity of the model at the same time we see sales and EBIT margins turn up meaningfully on the margin.

 

We can talk about our $16 sum-of-parts model until we’re blue in the face, but stocks don’t trade on break-up values…we get it. But they do trade on cash flow, and the delta here for changes in cash flow and RNOA will be unmistakable over the next 12-months, and should lead to price appreciation that will be embarrassing to have missed.

 

 

If you have not received a copy of our report, contact to request access.

 

LIZ: Black Book Available - LIZ BB Cover

 

Casey Flavin

Director

 

 

 


THE HBM: PNRA, YUM, SBUX, CBRL, DIN

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

 

MACRO

 

Commodities

 

While coffee prices have declined -3.3% over the last week, prices have increased 24% since August 8thand near peak YTD levels.

 

THE HBM: PNRA, YUM, SBUX, CBRL, DIN - coffee 913

 

 

Subsectors

 

Full service restaurants outperformed peer food, beverage and restaurant subsectors as DIN and CBRL traded strongly.  CBRL reported a poor quarter this morning and is set to decline on the open, trading down -5% premarket.

 

THE HBM: PNRA, YUM, SBUX, CBRL, DIN - subsectors fbr

 

 

QUICK SERVICE

  • PNRA has been reiterated Overweight by Piper Jaffray with a price target of $148
  • YUM expects its Indian operations to be around $1 billion by 2015.
  • SBUX short interest has increased by 61% as of the August 31stdata versus the data as of two weeks prior.

 

CASUAL DINING

  • CBRL reported $1.00 in EPS for 4QFY11 versus expectations of $0.91.  The board has authorized $65mm for share repurchases.  Restaurant comps came in at -1.4% versus consensus of -0.7%.  Retail comps came in at -0.7% versus consensus of +1.2%.  Traffic declined 4.2% during the quarter while average check gained 2.8%.  Operating margins, at 6.2%, were 60 basis points below consensus. 
  • DIN’s Applebee’s Neighborhood Grill & Bar has teamed with sports channel ESPN for a fall Monday night football “Check In and Win” promotion.

 

THE HBM: PNRA, YUM, SBUX, CBRL, DIN - stocks 913

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


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