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Shorting: SP500 Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY), Short Consumer Staples (XLP), Short SP500 (SPY)

 

Short high. On our way up to 1266, that is…

 

I was leaning long for the better part of last week (12 LONGS, 7 SHORTS on Thursday), and now I’m taking that net exposure right back to neutral (10 LONGS, 10 SHORTS). While it’s never easy to pick your spot from a beta perspective, I do not think this spot is very difficult to choose. 

  1. The TAIL (1266) remains broken
  2. The TRADE (1) is now immediate-term overbought
  3. The Catalyst (EU Summit decisions Wednesday) looks like it could very well be bearish relative to expectations 

Every market has a time and price that bakes in some level of expectations. The heartache usually occurs for the largest amount of people at the most unfortunate time. While the Pain Trade has been higher since the SP500 moved to bullish TRADE 2 weeks ago, now I think it could move to lower – in a hurry.

 

Immediate-term TRADE support at 1218 is what I’m looking for. If that breaks on event risk, there will be a sharp 40-50 points of SP500 downside risk that appears very quickly. If 1218 holds, just cover shorts there and trade the range.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Shorting: SP500 Levels, Refreshed - SPX


THE HBM: DNKN, MCD, CBRL

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

China

 

China’s vast manufacturing sector expanded moderately in October to snap three months of contraction, assuaging fears that a hard landing is imminent in China.

 

Employment

 

U.S. companies’ hiring plans reflect the worst employment outlook since January 2010 as demand is slowing, according to Bloomberg news.

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: DNKN, MCD, CBRL - subsector fbr

 

 

QUICK SERVICE

 

DNKN: Dunkin’ Brands has appointed Joe Uva to the Board of Directors.  Mr. Uva was most recently President and CEO of Univision Communications, Inc.

 

MCD: McDonald’s UK boss was interviewed in the Telegraph.  The article is positive, with the head of McDonald’s in the UK highlighting 22 consecutive quarters of UK sales growth as evidence of the company’s success.

 

CASUAL DINING

 

CBRL: Cracker Barrel’s biggest shareholder, Biglari Holdings, has boosted its stake to 9.9%

 

THE HBM: DNKN, MCD, CBRL - stocks 1024

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


BWLD: WING PRICE COMMENTARY FROM THE SAFM INVESTOR CONFERENCE

Our stance on BWLD remains intact; the company’s most recent quarter was strong from a comparable sales perspective but coming commodity inflation is set to change the landscape meaningfully.

 

Buffalo Wild Wings posted stronger comps than we were anticipating largely due to the unlimited wings lunch promotion.  With the 3Q cost of traditional chicken wings having been as low as it was ($1.16 per lbs or 18% lower than 3Q10), offering such a promotion had an impact on margins that was easily offset by the incremental traffic generated.  However, this strategy is unsustainable and does nothing to convince us that the stock’s current level is sustainable. The most important part of this thesis is that chicken wing prices are heading higher and will likely become a headwind half-way through the first quarter of 2012.

 

At the Sanderson Farms Investor Conference in New Orleans last week, there were detailed presentations given by various members of the SAFM team as well as Sue Trudell from Express Markets, Inc on the Broiler Industry and Tim Brushnan from Brock & Associates on the grain market.  The most important take away from the meeting from BWLD’s perspective is that chicken (and wing) prices are most likely going higher. 

 

The insight on the broiler industry was particularly telling; chicken wing prices are expected to move significantly higher during the winter and into the Super Bowl.  While Trudell did not think that wing prices were going to reach ’09 peak levels, her company’s analysis is anticipating prices touching $1.50 and staying above 2011 levels for the majority of 2012.  Joe Sanderson, giving his take on wing price trends, anticipates $1.45 per pound by the time the Super Bowl rolls around.  It is also worth noting that the chicken wing prices forecasted during the presentation were “conservative” in their assumptions.  It is possible that 2012 could pose significant challenges for BWLD from a cost of sales perspective.

 

For the first three quarters of 2011 wing prices for BWLD have averaged $1.22, $1.02 and $1.16 per pound, respectively.  For context, if chicken wing prices were to average $1.50 during the first three quarters of 2012, that would represent year-over-year wing price inflation of 23%, 47%, and 29% during 1Q, 2Q, and 3Q, respectively.  From a commodity perspective, 2012 is shaping up to be a very difficult year for BWLD.  

 

  

BWLD: WING PRICE COMMENTARY FROM THE SAFM INVESTOR CONFERENCE - bwld wing prices

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


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.

THE M3: SEPT VISITOR ARRIVALS; CHANGI DATA; S'PORE CPI; INFLATION

The Macau Metro Monitor, October 24, 2011

 

 

VISITOR ARRIVALS FOR SEPTEMBER 2011 DSEC

Visitor arrivals increased by 17.8% YoY to 2,166,627 in September 2011.  Visitors from Mainland China surged by 39.3% YoY to 1,246,256.  Mainland visitors traveling to Macau under the IVS totaled 449,098, up by 31.7% YoY.   On the contrary, visitors from Hong Kong (582,025); Taiwan (101,047); Japan (35,623) and the Republic of Korea (26,677) decreased by 2.7%, 0.6%, 12.1% and 9.5% respectively; however, visitors from Singapore (23,118) registered a notable increase of 36.2%. 

 

THE M3: SEPT VISITOR ARRIVALS; CHANGI DATA; S'PORE CPI; INFLATION - visitor

 

SEPTEMBER BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

September passenger movement at Singapore's Changi Airport increased 12.5% YoY to 3,817,720.

 

SINGAPORE'S CPI COOLS TO 5.5% IN SEPTEMBER Channel News Asia

Singapore's CPI slowed to 5.5% YoY growth in September, down from 5.7% growth in August.  Economists were expecting a 5.7% print.  The Monetary Authority of Singapore's core inflation rate eased to 2.1% YoY in September, down from 2.2% the previous month.

 

GOVT PREPARING NEW MEASURES TO FIGHT INFLATION Macau Business

Secretary Tam said the government is preparing a new package of measures, including an increase in food supply sources, to curb inflation in Macau.  Macau CEO Chui Sai On will unveil the full package in the November policy address.


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - October 24, 2011

 

President Obama embarks on 3-day western state swing, with visits to Nevada, California and Colorado and is supposed to talk on housing and other economic issues. This is evidently what the Keynesians are working Bernanke on as well behind the scenes.   Putting in more policies to slow gravity will be interesting to observe.   As we look at today’s set up for the S&P 500, the range is 19 points or -1.47% downside to 1220 and 0.06% upside to 1239. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 1024

 

THE HEDGEYE DAILY OUTLOOK - daily sector performance

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 2239 (+1608) 
  • VOLUME: NYSE 1190.31 (+24.23%)
  • VIX:  31.32 -9.95% YTD PERFORMANCE: +76.45%
  • SPX PUT/CALL RATIO: 2.12 from 1.40 (+51.23%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 40.31
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.23 from 2.20    
  • YIELD CURVE: 1.93 from 1.92

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Chicago Fed Nat Index: est. -0.21, prior -0.43
  • 8:45 a.m.: Fed’s Dudley to speak in the Bronx on the economy
  • 9:00 a.m.: Fed’s Fisher speaks in Toronto on U.S. economy
  • 11:30 a.m.: U.S. to sell $56b 3-mo., $27b 6-mo. bills
  • 1:00 p.m.: Fed’s Dudley to speak to Bronx Chamber of Commerce

WHAT TO WATCH:

  • Mattel announces acquisition of HIT Entertainment
  • European leaders ruled out tapping ECB’s balance sheet to boost the region’s rescue fund; outlined plans to aid banks
  • Turkey officials fear as many as 1,000 people died in 7.2 earthquake yesterday, worst since 1999
  • China government official says CPI has reached turning point, will be under 5% in the next two months - Securities Times
  • Swiss banks will likely settle a sweeping U.S. probe of offshore tax evasion by paying billions of dollars and handing over names of thousands of Americans who have secret accounts, according to two people familiar with the matter

COMMODITY/GROWTH EXPECTATION                                             

 

COPPER – another mean reversion bounce off of an immediate-term TRADE oversold low; Copper would have to close > 3.49/lb to get above its TRADE line of resistance; TREND and TAIL for copper much higher at 3.94-4.13.

 

THE HEDGEYE DAILY OUTLOOK - daily commodity monitor

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • China Manufacturing Gauge Rises as Japanese Exports Advance
  • Hedge Funds Raise Bullish Bets Most in Two Months: Commodities
  • Thai Floods Spill Into Northern Bangkok After Levee Violence
  • Buffett-Backed Carmaker Comes Late With Fewer Jobs Than Promised
  • Sprott Buys Energy With Commodities at Recession Valuation
  • Saudi Crown Prince’s Death Raises Succession Questions
  • Roubini Sees 50% Chance of Recession in U.S., Eurozone, U.K.
  • Base Metals Extend Biggest Rally in Two Years on China Outlook
  • Gold Gains for a Second Day as Europe Debt Concerns Spur Demand
  • Oil Advances a Second Day on Asian Economic Growth, Europe Plan
  • Vale Losing to BHP on China Market-Share Concern: Brazil Credit
  • Hedge Funds Boost Oil Bets as Crude Prices Climb: Energy Markets
  • China Must Control Food Prices to Curb Inflation, Premier Says
  • China’s Steel Prices Decline Most Since 2008 Global Crisis
  • Floods in Southeast Asia May Cause Food Shortages, UN Says
  • Wal-Mart’s Rivals in China May Gain Ground After Pork Probe
  • Oil Advances a Second Day on Asian Economic Growth, Europe Plan
  • ABN Expands Energy, Commodities and Transportation Division
  • JSW Steel Said to Consider a Bid for Australian Miner New Hope

 

CURRENCIES                                                        

 

EURO – With the ECB backing off being a big part of the bazooka, I don’t think the media gets what that means – markets do; the Euro is backing off my TAIL zone of resistance 1.39-1.40 and every single market in Europe (stocks) has failed at my TREND lines of resistance again – Greece and Cyprus are crashing again, down -4.9% and -6.9% on the day, respectively.

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

Eurozone Oct Manufacturing preliminary 47.3 PMI  vs consensus 48.0 and prior 48.5

Eurozone Aug Industrial new orders +6.2% y/y vs +5.7% consensus and prior revised to +8.9% from +8.4%; Eurozone Aug Industrial new orders +1.9% m/m vs consensus +0.2% and prior revised (1.6%) from (2.1%)


THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

CHINA – the flash PMI print came in at 51.1 which means Asia could stop going down for the day; context: last week, Asian equity markets were down -1.2% week/week on a median basis.   Losses were led by China (-4.7%) and Thailand (-4.1%), as both struggled with heightening domestic risks. The Hang Seng closed back > its TRADE line of 18,344 on a +4.1% move.

 

 

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

The Hedgeye Macro Team

Howard Penney

Managing Director


MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE

Credit default swaps for banks and sovereigns were slightly wider overall last week.  French swaps widened the most among sovereigns, increasing 6.4% to 192.  The TED spread made a new YTD high while the JOC index made a new YTD low.

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 2 of 11 improved / 0 out of 11 worsened / 9 of 11 unchanged
  • Intermediate-term (MoM): Positive / 4 of 11 improved / 1 of 11 worsened / 6 of 11 unchanged
  • Long-term (150 DMA): Negative / 2 of 11 improved / 7 of 11 worsened / 2 of 11 unchanged

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Summary

 

1. US Financials CDS Monitor – Swaps tightened across 18 of 28 major domestic financials last week.

Tightened the most vs last week: GS, MS, LNC

Widened the most vs last week:  PMI, MTG, AGO

Tightened the most vs last month: PMI, CB, MMC

Tightened the Least/Widened the most vs last month: GS, AGO, AIG

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - CDS  US

 

2. European Financials CDS Monitor – Bank swaps were mixed in Europe last week, with swaps tightened for 21 of the 40 reference entities. Greek banks were the worst performers, as Alpha Bank A.E. and EFG Eurobank Ergasias S.A widened 30% and 15.2% respectively. German banks also saw deteriorations, with swaps widening an average of 7.5% WoW.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - CDS  Europe

 

3. European Sovereign CDS – European sovereign swaps widened slightly last week. Only German and American spreads tightened. American spreads tightened by 12%.  French swaps widened 6.4% to 192 from 180. 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Sovereign CDS  1

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Sovereign CDS  2

 

4. High Yield (YTM) Monitor – High Yield rates fell 36 bps last week.  Rates retraced back to their late-September levels, ending the week at 8.13 versus 8.49 the prior week.

 MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - High Yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 18 points last week, ending at 1566. 

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - LLI LT

 

6. TED Spread Monitor – Last week the TED spread hit another new YTD high, ending the week at 40.3 bps.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - TED spread

 

7. Journal of Commerce Commodity Price Index – The JOC index continued its decline, falling 3.3 points to end the week at -23.3.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - JOC LT

 

8. Greek Yield Monitor – Last week the 10-year yield on Greek debt rose 11 bps to end the week at 2404 bps versus 2393 bps the prior week. Bond yields are currently just 164 bps off of their all-time high.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Gr Bond LT

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1.  Last week, spreads rose 1.3 bps and closed at 174 bps.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - MCDX

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index fell 20 points, ending the week at 2153 versus 2173 the prior week.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Baltic Dry Index

 

11. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 10-year yield fell to 2.22, pushing the 2-10 spread to 195 bps, 3 bps tighter than a week ago.   

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.8% upside to TREND resistance and 3.7% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - XLF Macro setup

 

Margin Debt Falls in August

We publish NYSE Margin Debt every month when it’s released. 

 

 NYSE Margin debt hit its post-2007 peak in April of this year at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did this past April, that has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May of this year.

 

 The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. This is important because it means that margin debt, which has retraced back to +0.64 standard deviations as of August, still has a long way to go. We would need to see it approach -0.5 to -1.0 standard deviations before the trend reversed. We’ve dropped 230 S&P handles in getting from +1.5 standard deviations to +0.64 standard deviations. There’s plenty of room for short/intermediate term reversals within this broader secular move, but overall this setup represents a material headwind for the market.  

One limitation of this series is that it is reported on a lag.  The chart shows data through August.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - margin debt

 

Joshua Steiner, CFA

 

Allison Kaptur


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