prev

Short Covering Opportunity: SP500 Levels, Refreshed

POSITION: Long Utilities (XLU)

 

This is the 3rd Short Covering Opportunity note I have written in the last 2 months (August 8th and September 12th were the other two).

 

I mention these time stamps not to take a victory lap, but to reiterate the confidence we have in our risk management process. It’s not always right. But it’s right a lot more than it’s wrong – and it’s repeatable.

 

Across durations, here are the lines that matter now: 

  1. TREND resistance = 1237
  2. TRADE resistance = 1137
  3. TRADE support = 1079 

I’ve covered our short position in the Consumer Staples ETF (XLP) and have bought back the only Sector ETF we like (Utilities – XLU), moving our asset allocation in the Hedgeye Asset Allocation Model back up to 6% from 0%.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Short Covering Opportunity: SP500 Levels, Refreshed  - SPX


THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE

THE HEDGEYE BREAKFAST MONITOR

 

MACRO

 

Commodities

 

Cattle futures rose to a record as demand for U.S. beef is increasing as shrinking domestic herds signal tighter supplies and higher costs for restaurant companies like TXRH with exposure to beef.

 

The decline in gasoline prices is good for casual dining traffic but, if like in 2008 it is due to a fall in demand as economic conditions deteriorate, the benefit of cheaper gas may be offset.  The price action in casual dining stocks certainly suggests that lower gas prices are not bolstering sales significantly.

 

THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE - gasoline prices

 

 

The ICSC chain store sales index rose 0.1% last week; the second week of little change. Year-over-year growth jumped to 3.7%, the fastest growth in nine weeks as sales fell in the comparable week last year.

 

 

SUBSECTOR PERFORMANCE

 

Yesterday was a tough day for all of the food, beverage and restaurants stocks.  Casual dining got beaten up again, declining -4.9% on average.

 

THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE - subsector fbr

 

 

QUICK SERVICE

 

SONC: Sonic Corp. reported sales trends of 0.4% for the fourth quarter of its fiscal year ended September.  This represents a significant slowdown in trends for the drive-in chain.  The company expects positive same-store sales in FY12 and flat restaurant level margins.

 

THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE - sonc pod1

 

 

YUM:  Yum! Brands reports after the close today and we will be listening carefully for commentary around trends in China in light of softening economic data.  We like YUM on the long side, believing that the company will deliver double-digit EPS growth for 2011.  Furthermore, in the past, concerns on China have provided favorable entry points for buyers of YUM’s stock.

 

CMG: Chipotle Mexican Grill was initiated Outperform at Credit Suisse. 

 

SBUX: Starbucks is offering any breakfast sandwich for $2 when customers buy any beverage from October 4-10that participating stores.

 

THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE - sbux breakfast

 

 

CASUAL DINING

 

CAKE:  The Cheesecake Factory was rated consumers’ favorite casual-dining restaurant for the second year in succession, according to Market Force Information’s rankings of casual dining restaurants.  Texas Roadhouse and Olive Garden took silver and bronze, respectively.

 

THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE - STOCK 104

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - October 4, 2011

 

This Correlation Crash is now readily evident to anyone who didn’t think it could happen.  As we look at today’s set up for the S&P 500, the range is 50 points or -1.75% downside to 1080 and 2.80% upside to 1130Good news is that yesterday, US stocks finally moved into immediate-term TRADE oversold territory – so today Keith is makeing the 3rd major Short Covering Opportunity call he’s made since the 1st one on August the 8th.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 104

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -2498 (-662) 
  • VOLUME: NYSE 1403.71 (+6.08%)
  • VIX:  45.45 +5.80% YTD PERFORMANCE: +156.06%
  • SPX PUT/CALL RATIO: 2.29 from 1.49 (+53.14%)

 

CREDIT/ECONOMIC MARKET LOOK:

 

YIELD SPREAD – it will be fascinating to hear Bernanke testify today that this is working; the TWIST is compressing the Yield Spread to a fresh YTD low this morning (153bps wide) and only perpetuating the pain on the front lines of this fear that the banks cash earnings are under siege – in this case, the fear is well placed. I remain long the US Treasury Flattener (FLAT)

  • TED SPREAD: 37.25
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.80 from 1.92     
  • YIELD CURVE: 1.56 from 1.67

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45 a.m./8:55 a.m.: ICSC/Redbook weekly retail sales
  • 9 a.m.: Fed Gov. Raskin speaks on foreclosures
  • 10 a.m.: Fed Chairman Bernanke to testify on economic outlook before Joint Economic committee of Congress
  • 10 a.m.: Factory orders, est. 0.0%, prior 2.4%
  • 11 a.m.: U.S. Fed to purchase $4.25b-$5b notes/bonds
  • 11:30 a.m.: U.S. to sell $30b 4-wk bills
  • 4:30 p.m.: API inventories
  • President Obama speaks on American Jobs Act in Mesquite, Texas, before heading to campaign event in St. Louis
  • 10 a.m.: House meets to consider Senate amended continuing resolution, which provides FY12 funding through Nov. 18

 WHAT TO WATCH:

  • Apple’s next iPhone may be showcase for improved voice controls, hinting at improved speech technology. Event at 1 p.m.
  • Belgium, France say they will act to prop up Dexia if necessary
  • Europe faces rising risk of double-dip recession, S&P says
  • Fed Chairman Bernanke testifies on economic outlook before Joint Economic Committee of Congress, 10 a.m.
  • U.S. regulators said to consider if as many as 4.5m foreclosure cases will be examined to determine if compensation is due: WSJ
  • General Maritime (GMR) is in talks with lenders, creditors on potential restructuring
  • Kinetic Concepts (KCI) unnamed bidder withdrew offer; co. expects to be taken private by Apax Partners for $68.50/shr
  • McGraw Hill (MHP) sells nine-station broadcasting group to E.W. Scripps (SSP) for $212m in cash

 

COMMODITY/GROWTH EXPECTATION                                                                    

 

COMMODITIES: crash in copper and oil continue; both immediate-term TRADE oversold (finally) at $2.95/lb and $76.09/barrel respectively

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • Goldman Cuts GDP Estimates; Sees German, French Recessions
  • Mordashov Expands Steel Output as Mittal Retrenches: Commodities
  • Commodities to Rally 20% on Emerging Markets, Goldman Says
  • Ivanhoe, Rio Reject Mongolian Bid to Change Oyu Tolgoi Deal
  • Oil Drops a Third Day as Goldman Cuts Forecast for Brent Crude
  • Gold Rallies for Fourth Day as Europe Crisis Spurs Haven Demand
  • BHP, Rio Bond Risk Soars to 2-Year High on Slowdown Concerns
  • Copper Falls for Fifth Day as European Crisis May Curb Demand
  • Record U.S. Gasoline Cargoes Drive 17% Gain in Tankers: Freight
  • Commodities to Extend Decline, Says Sarin: Technical Analysis
  • Oil Falls to Eight-Week Low on U.S. Supplies, Libyan Production
  • Copper Drops in London Before U.S. Factory Orders: LME Preview
  • Platinum-Gold Ratio Drops to Lowest Level Since at Least 1987
  • Sugar Production in India Delayed by Cane-Pricing Dispute
  • CME Group Increases Margins on Copper, Platinum Futures
  • Oil Speculation Rules Probed by Levin Panel as CFTC Nears Vote
  • Palm Oil Drops for Second Day on European Debt Crisis Concern
  • Gold Gains for Fourth Day as Europe Debt Concern Spurs Demand
  • Uranium Prices Rise as Fukushima Volatility Persists, Ux Saysd

 

CURRENCIES                                                                             

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

EUROPE: crash continues after DAX broke the line we signaled as critical support yesterday (5439); Italy (which we're short) = -38% since Feb.

 

DAX: the only line left (Germany’s TRADE line of support at 5439) is now gone and Ackerman (Deutsche Bank) is telling the world what we all know (the money-center banks of the world are going to miss badly and be forced to guide down)

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

ASIA – crashing equities and currencies continue to be led by Hong Kong (down another -3.4% overnight; down -33% since

US Equities peaked in April!); KOSPI crash continued at down -3.6% (down -23% since May); Singapore -3%; Thailand -2.7%, etc.

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Leading From The Front

This note was originally published at 8am on September 29, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“We will all sleep as I do, in the open.”

-Leonidas

 

At the end of chapter 22 of “Gates of Fire”, King Leonidas gives an epic speech to his officers about leadership.

 

“I am telling the Spartans what I tell you now. You are the commanders; your men will look to you and act as you do. Let no officer keep to himself or his brother officers, but circulate day long among his men. Let them see you and see you unafraid.”

 

Compare and contrast that sense of responsibility and selflessness versus the putrid lack of accountability we have to wake up to as modern day capitalism comes under left-leaning Keynesian assault:

 

“Monetary policy is not a panacea. There are certainly some areas where other policy makers could contribute.”

-Ben Bernanke (in a speech yesterday)

 

There is no legitimate leadership in this country’s economic policy making inasmuch as there is none in France or Italy this morning. Losers are pointing fingers and making excuses rather than bellying up to the bar like Red Sox GM Theo Epstein did last night:

 

You can’t sugarcoat this. This is awful. We did it to ourselves and put ourselves in a position like this to end our season.”

 

The winners in this country who bleed red, white, and blue get accountability. Our academic and political policy makers, who have never had to meet a payroll in their life, do not.

 

Back to the Global Macro Grind

 

In Monday’s Early Look I outlined this week’s calendar of Global Macro catalysts. The last 2 catalysts left for the Big Government Intervention “is the best path to long-term economic prosperity” club, were a vote for the Euro-TARP bailout in the Bundestag and month-end markups.

 

If the German vote was your catalyst to be long anything European or US Equities, that catalyst is now gone. What do you do now? Hope for another left-leaning central plan to suspend economic gravity? Or just say hey – this whole Keynesian thing “is not a panacea?”

 

Rather than lean on the losing side of this year’s Global Macro trade, it’s time to get back to winning again here this morning. From New Haven, Connecticut to St. Louis, Missouri, we’re issuing a friendly challenge to all of the winners of the 2011 game of Globally Interconnected Risk to unite.

 

First, let’s stick with this week’s game plan:

  1. Monday, I cut our asset allocation to US Equities to 0% again (sold Utilities, XLU)
  2. Monday, I cut our asset allocation to Commodities to 0% again (sold Gold, GLD)
  3. Tuesday, I moved the Hedgeye Portfolio back to net short (more shorts than longs)

This isn’t being “over-confident”, “uber bearish”, or whatever the losers and the haters out there want to call us. This is simply a reminder that we have a repeatable risk management process at this firm that has saved our clients and their clients a lot of money in both 2008 and 2011.

 

"Winning takes talent, to repeat takes character."

-John Wooden

 

Winning doesn’t require bailing out losers. It doesn’t require extending the short-selling ban like the French are doing again this morning either. Winning requires accountability, confidence, and trust. If people don’t trust you or your economic policy making process, you should be fired.

 

The SP500 is down -26.5% from the October 2007 high. It’s down -15.6% from the April 2011 lower-long-term high. This is called losing. And the best way to start winning again is to end whatever it is that these people keep doing to our markets, over and over and over, again.

 

No more whispers, rumors, and squirreling around in the shadows of this fiat system. No more bailout money printing as the elixir of short-term political life. Stop.

 

I want to see shields flashing like mirrors, for this sight strikes terror into the enemy” (Leonidas in Gates of Fire, page 226). Give me transparency, or give me a place of American mediocrity where I can sleep in.

 

My support and resistance ranges for Gold, Oil, the German DAX, and the SP500 are now $1567-1667, $77.91-83.69, 5449-5741, and 1113-1171, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Leading From The Front - Chart of the Day

 

Leading From The Front - Virtual Portfolio


THE M3: SEPT GGR; AMBROSE SO

The Macau Metro Monitor, October 4, 2011

 

 

MONTHLY GROSS REVENUE FROM GAMES OF FORTUNE DSEC

Macau September Gross Gaming Revenue came in at 21.24BN MOP (20.63BN HKD, 2.65BN USD), representing YoY growth of +38.8%.

 

SJM REMAINS CONFIDENT DESPITE STOCK SELL-OFF Macau Daily Times

SJM CEO Ambrose So said, “I’m not too worried about the slowdown in China. Basically the growth is still in this region....We want to have a very strong growth. In the first few days [of October] we see that the trend is keeping up, despite the fact that people are talking about a slowdown in China and in this region. But we haven’t felt the impact yet....We are still waiting for a Government response to our application for a plot in Cotai close to the Macau Dome."



the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next