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Squeezy: SP500 Levels, Refreshed

POSITION: Long Utilities (XLU)


So I’m like a Perma-Bull now, right? All I do is buy-the-dips.


From a quantitative setup perspective, not a lot has changed day-over-day other than our getting opportunities to get longer (on a net basis) by covering shorts and patiently buying longs. Italy being a mess and US Housing Double Dipping are calls we’ve been making for over a year.


This morning I moved the Hedgeye Portfolio to 14 LONGS and 7 SHORTS (right back to where I was last Thursday morning). Most of the big levels that matter are similar. Fear (VIX) is being sold more aggressively now. That inverse relationship to US Equities needs to be respected.


Updated risk management lines across durations: 

  1. SELL TAIL = 1266
  2. SELL TRADE = 1231
  3. BUY TRADE = 1189 

So if you get another chance to cover shorts at higher-lows, do that. Then sell at the top of this proactively predictable range (1231).


Squeezy The Shark is hungry.



Keith R. McCullough
Chief Executive Officer


Squeezy: SP500 Levels, Refreshed - SPX


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






QSR stocks outperformed yesterday as CMG and SBUX moved higher.  Dean Foods dragged the food stock average performance down.


THE HBM: MCD, SBUX, THI, KONA - subsector fbr





MCD was added to the “Fresh Money Ideas” list at Lazard.


SBUX is giving away free iBook downloads in partnership with Apple’s iTunes.  The downloads are available via in-store Wi-Fi hotspots.


THI recently opened its first store in Dubai, according to management commentary at the Scotia Back to School conference. 





KONA was raised to a “Strong Buy” at Feltl.  The price target is $8 per share.


THE HBM: MCD, SBUX, THI, KONA - stocks 920



Howard Penney

Managing Director


Rory Green




TODAY’S S&P 500 SET-UP - September 20, 2011

As we look at today’s set up for the S&P 500, the range is 41 points or -1.42% downside to 1187 and 1.99% upside to 1228.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -1647 (+53) 
  • VOLUME: NYSE 908.4 (-49.9%)
  • VIX:  32.73 +5.7% YTD PERFORMANCE: +84.39%
  • SPX PUT/CALL RATIO: 2.73 from 1.87 (+46%)



  • TED SPREAD: 35.25
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 1.98 from 1.95
  • YIELD CURVE: 1.82 from 1.80


MACRO DATA POINTS (Bloomberg Estimates):

  • FOMC begins 2-day rates meeting, decision tomorrow
  • 8:30 a.m.: Housing starts, est. 590k (-2.3% M/m), prior 604k
  • 8:30 a.m.: Building permits, est. 590k (-1.8% M/m), prior 597k
  • 8:55 a.m.: Redbook weekly sales
  • 11:30 a.m.: U.S. to sell $30b 4-wk, $25b 52-wk bills
  • 4:30 p.m.: API inventories 



  • Greece will hold another call with its main creditors today after a “productive’’ round of talks yesterday aimed at staving off default
  • Express Scripts to tell Congress in subcommittee hearing its $29.1b bid for Medco would reduce drug costs, preserve “highly competitive” marketplace
  • IATA raises its 2011 forecast for global airline profits by 73%
  • Eight offshore banks are under federal grand jury investigation for facilitating tax evasion by U.S. citizens
  • AT&T was sued by Cellular South in an effort to block T- Mobile acquisition
  • Italy debt rating cut by S&P to A on weaker growth outlook; two-year Treasury drops to record low
  • UBS board to meet in Singapore this week following disclosure of $2.3b loss from unauthorized trading: 2 people with knowledge of situation
  • U.S. said to be probing trades made before S&P cut U.S. rating in August, WSJ says
  • FDA briefing docs due for Sept. 22 advisory panel on New York Blood Center’s umbilical cord blood BLA
  • Tyco units may attract interest from UTX, Honeywell, Johnson Controls: Bernstein
  • GM-UAW contract presented to union locals



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Cattle Seen at Record $1.36 a Pound After Cull: Commodities
  • Oil Rises on Equity Markets’ Advance, Speculation of Supply Risk
  • Copper Rises From Nine-Month Low as Rio Sticks to Demand Outlook
  • Teekay Profit Booms on LNG Shipping Demand: Freight Markets
  • Gold to Top $2,000 This Year on ‘Confidence Crisis,’ Survey Says
  • Corn, Soybeans Advance as Adverse U.S. Weather May Hurt Crops
  • Coffee Climbs on Speculation La Nina May Hurt Crops; Cocoa Rises
  • Fertilizer Safer Than Gold to Uralkali’s Lenders: Russia Credit
  • Qaddafi Wheat Cargo Helped Sustain Libyan Rebellion’s Stronghold
  • Australia Cuts Commodity Sales Outlook 1.6% on Lower Prices
  • Food-Inflation Concerns Will Persist, FAO’s Abbassian Says
  • Sugar Output in India Seen at Four-Year High as Planting Gains
  • Chevron Victory Blocking $18 Billion Verdict Thrown Out in U.S.
  • Egypt to Boost Wheat Imports to Avert Unrest, El Attal Says
  • Gold Gains in London as European Debt Concern Spurs Demand
  • Australia Increases Sugar-Output Estimate as Crop Recovers
  • Oil Stockpiles Fall to Eight-Month Low in Survey: Energy Markets




THE HEDGEYE DAILY OUTLOOK - daily currency view





THE HEDGEYE DAILY OUTLOOK - euro performance





THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

Being the Critic

This note was originally published at 8am on September 15, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The critic has to educate the public; the artist has to educate the critic.”

-Oscar Wilde


Life is short.  So short, in fact, that we should all try to find time to do things that we enjoy and derive some amount of satisfaction from doing them.  I’ll be honest, I think most Hedgeyes enjoy what they do every day.  As for other financial firms, I’m not so sure.


According to reports this morning, UBS lost roughly $2 billion from “unauthorized trading by a trader in its Investment Bank”.  Not to name names, but if you work at a certain investment bank this morning, that kind of sucks.


So, here’s the bottom line, Hedgeye is hiring. What are we looking for? Well, quite simply, people that have a passion for doing great research.  No, we aren’t going to offer anyone a super duper 3 by 10 guaranteed bonus, but if you do love what do and think your research is differentiated, well, then email me : djones@hedgeye.com.  Keith calls me Big Alberta and I’m more commonly known as the Director of Research at Hedgeye.


Back to the global macro grind. . .


Far be it for the lads at Hedgeye to be contrarian, but, are you sitting down, the SP500 is currently giving us a bullish immediate-term TRADE signal.  Not only that, but 7 of 9 S&P sectors are giving us the same quantitative signal.  Aye carumba ! Are the Hedgeye lads getting all bulled up? Well, at least for a trade. . .


Currently, the only two sectors that remain bearish on our TRADE duration are Financials (XLF) and Industrials (XLI).  In the Virtual Portfolio, we are long Utilities (XLU) and short Industrials (XLI).  Not only has this worked in the year-to-date with Industrials down -10.1% and Financials and Utilities up 7.0%, but we think it will continue to work.


It has been an interesting few weeks for us at Hedgeye.   In dramatic fashion, we have seen many of the largest sell side economists capitulate to our view on the economy and growth.  For those of our subscribers that read us somewhat regularly, they know being bearish is not new to Hedgeye.  In fact, by way of a time stamp, attached is an article that I wrote for Fortune on December 31st, 2010:




If you don’t have time to read it, I will highlight one quote, which is as follows:


“Currently, according to a Bloomberg survey of the strategists from 11 of the largest brokerage firms in the United States, the mean consensus target for the S&P 500 by year end 2011 is roughly 10% above current levels. Further, every single strategist is expecting a positive performance out of the index in 2011.”


As my 9-year old niece might say, OMG ! Indeed, it is somewhat scary to think that the reputed smartest economists on the street got the target for the most relevant stock market in the world so wrong. 


Yesterday CNBC hosted its Seeking Alpha Conference, which on some level was entertaining to watch.  Actually, it was entertaining on many levels. The most interesting excerpt was from Leon Cooperman who, and I’m paraphrasing, indicated that he recently had lunch with his top friends in money management and they are all under allocated to U.S. equities.  Now, obviously, Mr. Cooperman isn’t always right, but he has been around the block and his statement yesterday was insightful.  Incidentally, and not that we planned this, our current weighting to global equities is currently 24%, which is our highest allocation since early July . . . aye carumba, indeed !


In the longer term, we are not so bullish. In fact, in the Chart of the Day today, we highlight the long term interest rates of Japan.  Or as our Asian Analyst and former Yale lineman Darius Dale likes to characterize it : ZIRP.   For those of you that don’t know what ZIRP means, it stands for Zero Interest Rate Policy.  In the chart, Darius has outlined the dangers of ZIRP.


While conventional wisdom would have you believe that ZIRP means that equities are cheap on a relative basis, the history of Japan actually suggests otherwise. ZIRP was instituted in Japan in 1999 and the Nikkei has returned -37.4% since the start of that year. So while risk assets, like equities, look cheap vis-à-vis interest rates, it all depends on the assumed economic growth rate implied by interest rates.


On a totally non-linear note, I would like to end with a quote from a book that Keith is currently reading called “Gates of Fire”.  As Keith emailed the team late last night:


“There’s an excerpt in Gates of Fire where the Spartan officer, Dienekes, was told (on the eve of battle) that the Persian archers were so many in number that when they fired their volleys, the mass of arrows would block out the sun.

Dienekes looked at the messenger and said …


“Good. Then we will have our battle in the shade.””


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Being the Critic - Chart of the Day


Being the Critic - Virtual Portfolio

Angry Shorts

“Habit will be your champion.”



I covered some shorts and got longer again yesterday (14 LONGS, 8 SHORTS in the Hedgeye Portfolio) because that’s what my process was telling me to do. Coming into the day we were long the US Dollar and effectively long the American Consumption that’s associated with a strong US Dollar.


Strong Dollar Deflates The Inflation. Period.


Habit, discipline, process – these things matter. Since I am a hockey head, our competition likes to think that they can work less hard than us because they are smarter. Smart is as smart does. And as the great Spartan officer Dienekes went on to say in Gates of Fire, “habit is a mighty ally.”


The habit of fear and anger, or the habit of self-composure and courage” (Gates of Fire, page 139). As a professional Risk Manager, what are your habits?


Self-composure in a down market is as critical as not getting angry about getting squeezed on the short side in an up one. This morning’s headline “news” is that Italy is being “downgraded” by one of the most lagging of lagging indicators – a ratings agency. Italian stocks are down -39% since February. S&P’s view is not new “news.” Stocks rallying on the “news” is…


Courage is building a team and a risk management process that includes people other than yourself. In a globally interconnected marketplace, you have to be able to trust and depend on both your teammates and sources – or just get new teammates and new sources. Collaboration of experience is the only path to victory. Individualism dies young in this market’s battlefield.


Back to the Global Macro Grind


Let’s start with what we’ve called The Correlation Risk. That’s the risk that QE2 would inflate asset prices and that a policy to inflate would perpetuate Growth Slowing. Check, check, check. That’s your 2011 Global Growth Slowdown. It’s old news.


What happens if we reverse the causal mechanism in inflating commodity prices? What happens if we strengthen the US Dollar? Bottoms are processes, not points, but yesterday was a very good day not only for American Consumers but for Global ones: 

  1. US Dollar Index held its long-term TAIL of support = $76.45
  2. CRB Commodities Index (asset inflation) got blasted for a -1.8% drop on the day
  3. WTI Crude Oil prices broke my immediate-term TRADE line of support ($86.96) and moved back into a Bearish Formation 

Despite the SP500 being down -1% yesterday, the Consumer Discretionary Sector (XLY) closed up +0.24% on the day (the Energy Sector was down -0.88%). That, and Chinese/Indian equities rallying on the Italy “news”, made perfect sense to me. New “news” to the 95% of this world that couldn’t care less about Ben Bernanke is that prices at the pump are going down.


Is that good for Energy, Financials, or Basic Materials stocks? No. Is it good for Consumer and Healthcare stocks? Yes. What’s best for Americans, Indians, and Chinese? Policies to inflate? Or a strong US Dollar that Deflates The Inflation?


Don’t ask your local Washington/Wall Street revisionist “economist” about that. Ask The People.


From a sentiment perspective, and I highlighted this in last week’s Early Look, the other people (Wall Street consensus) are getting really bearish after global market prices have melted down. This shouldn’t be a surprise. This is the habit of fear and anger that you want to avoid in both your professional and family life.


Last week’s Institutional Investor Sentiment Survey showed the nastiest bear growl that we have seen in 2011. For the first time this year, the Bears outnumbered the Bulls. And not by a little – by a lot: 

  1. Bulls dropped from 39% in the week prior to a fresh YTD low of 35.5%
  2. Bears ramped from 38% in the week prior to 41%
  3. The Bull/Bear Spread flashed a Buy Fear signal at -550 basis points wide (Bulls minus Bears) 

At the same time, both the Volatility Index for US stocks (VIX) broke its TRADE line of support (34.67) and the SP500 rallied above its TRADE line of resistance (1180).  On the margin, that’s more bullish than it is bearish. It would take a 2011 Bear to know.


To be clear, these are immediate-term TRADE signals (3 weeks or less in duration). But every risk management point should have a but, and every TREND is born out of a TRADE. If the US Dollar Index continues to hold TREND line support ($74.62), I’ll continue to have the courage to buy and cover on red days. Selling on green is the easy part.


My immediate-term support and resistance ranges for Gold, Oil, Germany’s DAX, and the SP500 are now $1 (Gold’s immediate-term TRADE line of $1819 is broken), $86.03-86.98, 5029-5527, and 1187-11228, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Angry Shorts - Chart of the Day


Angry Shorts - Virtual Portfolio

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