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Bounce: SP500 Levels, Refreshed

POSITION: Long Healthcare (XLV)

 

I didn’t think we’d bounce this high, this fast. Good thing I’m not short SPY and/or any S&P Sector ETF. Now we can re-populate our short book.

 

What would stop me from selling in this 1194-1203 range? Time and price.

 

The SP500 would need to close above and hold 1203 (TREND resistance) through Friday’s US Unemployment Report. On top of this morning’s miss on monthly New Home Sales (307,000 versus 313,000 expected), there’s a good chance that the high-frequency US economic reports this week also miss (Consumer Confidence tomorrow, PMI Wednesday, ISM Thursday, etc).

 

Across our core 3 risk management durations, the SP500 remains in a Bearish Formation (bearish TRADE, TREND, and TAIL): 

  1. TAIL = 1270
  2. TREND = 1203
  3. TRADE = 1233 

Immediate-term TRADE oversold (support) is now 1170. Below that, no support to 1139.

 

Take your time selling. Today’s close will be a more important signal than this morning’s open.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bounce: SP500 Levels, Refreshed - SPX


NICE WEEK IN MACAU

November Gross Gaming Revenue estimate revised upward to HK22-22.5BN, +31-34% YoY.

 

 

Average daily table revenue jumped this past week to HK$775MM, up from HK$698MM the rest of the month and only HK$664MM last week (Grand Prix).  With only 3 days left in the month, total November GGR (including slots) should be in the HK22.0-22.5 BN range, up 31-34% over last year.  Despite the likely double digit % drop from October, we would consider November a solid month.  Remember that VIP hold % was high both in October 2011 and November 2010 and November is typically a seasonally slower month than October.

 

For market shares, LVS continues to gain share, as expected.  Neptune went live at Four Seasons on November 1st and Sun City recently opened 24 VIP tables.  Also, the company began advancing commissions to some junkets for up to two months which should spur volumes.  We estimate LVS’s share in the past week increased to 16.3% - almost to the pre-Galaxy Macau level.  However, we would've expected higher by this point which probably means VIP hold is a little low.  WYNN’s MTD share continued to improve sequentially, gaining 60bps from last week but still remains below recent trend.  In terms of hold, we believe LVS is holding low so they haven't gained as much share as they should/will, while WYNN is holding high which would explain why share has recovered a little bit since the beginning of November (1st two weeks share: 11.6%; last two weeks share: 14.5%).

 

As a reminder, while we are still bullish on Macau revenues, we remain concerned with the potential for more aggressive junket commissions/credit in the market.  WYNN is definitely at risk here with their low commission structure.  WYNN and Four Seasons overlap with Neptune, Sun City, David, and one other junket.  Also, in terms of quality and service, Four Seasons is the most direct comp for Wynn/Encore.

 

Given the recent poor performance of the Macau stocks and lower expectations, we think they could rally over the near-term (trade basis) but the prospects of a junket war temper our intermediate (trend) enthusiasm.

 

NICE WEEK IN MACAU - macau nov


THE HBM: PNRA, YUM

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Notes from CEO Keith McCullough

 

After Roubini called for Euro “parity” and the Euro appeared on the cover of The Economist (on fire) last wk, the US Dollar was immediate-term overbought and Euro oversold – shocking.

  1. ASIA – mini-meltup in the markets that have been going down the most (HK, India, Korea – all up +2-3% overnight) as China and Indonesia didn’t care much to rally at all (closing up 0.12% and 0.27%, respectively). Asian Growth is still slowing and all Asian markets remain in Bearish Formations (bearish on all 3 of my risk management durations)
  2. EURO – immediate-term TRADE oversold at 1.32 is as oversold does (we covered our Euro short there) – now you get the bounce back up toward a lower-high of immediate-term resistance (1.34). Take your time with this and use the USD as your front-runner to fade the Global Macro market’s beta.
  3. COMMODITIES – same Global Macro trade (Correlation Risk) that’s associated with the USD; what went down last week goes up this morning (with the USD down) – important immediate-term TRADE lines of resistance I am watching are Gold $1726 and Copper $3.45. If both fail there, both are shorts.

Don’t forget that last week was the worst Thanksgiving week for US stocks since 1932 (not a good reference pt, fyi). The SP500 would have to close > 1203 for me to not be selling on green today. Covered all but 6 short positions last wk, so now we can re-populate the bench.

 

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: PNRA, YUM - subsector fbr

 

 

QUICK SERVICE

 

PNRA: Panera Bread is opening its second Manhattan location in 1Q12 after leasing a 4,556 square foot unit at 10 Union Square East in New York.

 

YUM: Yum! Brands has reached an agreement with Sinopec to open drive-through outlets at its gas stations and expressway service stations in China.  Zhu Zongyi, President of Yum! Brands China Division, said, “We expect to expand our business in southwest China because that’s where social economic development is moving and we will open more in Chengdu in the New Year.”

 

THE HBM: PNRA, YUM - stocks 1128

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


Early Look

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THE M3: COTAI; UNEMPLOYMENT; HENGQIN

The Macau Metro Monitor, November 28, 2011

 

 

ALL OPERATORS TO GET COTAI PLOTS: TAM Macau Daily Times

Secretary Tam has confirmed that the government is planning to grant a plot for casino development in the Cotai area to all of the six gaming operators.  Tam also stressed the (average) 3% table growth cap from 2013-2023.  “There are reasons for this figure. We don’t want this sector to grow too much, too fast,” he said.  The official recalled that concession contracts were signed for a period of 20 years. “We are halfway there now so it’s the right timing to stop and look back,” he said.

 

Further restrictions would also pose a danger to the local economy, Tam warned.  “If we were to stop the gaming sector from developing, we would have a risky economic environment. There would be consequences for the Macau society,” he said.  "We want gaming to be just one element of a world-class tourism and leisure destination. But in the short-term, gaming will have to continue dominating the economy.”

 

UNEMPLOYMENT TO DROP: FRANCIS TAM Macau Daily Times

“We can expect a slight decrease in the unemployment levels [for 2012],” Secretary Tam said.   With two-digit economic growth expected to continue next year, the working-age population could rise by 10% in 2012, Francis Tam said.  Local hotels and restaurants had more than 7,400 vacancies at the end of September, despite hiring over 4,000 people in just half-a-year, official data shows.

 

EMPLOYMENT SURVEY FOR AUGUST - OCTOBER 2011 DSEC

The unemployment rate fell to a record low of 2.4% in August-October 2011, down by 0.2 % point compared with the previous period (July-September 2011).  Total labor force was 346,600 in August-October 2011 and the labor force participation rate reached a historical high of 73.0%, with total employment increasing by 2,900 over the previous period to 338,200. 

 

MACAU DIVERSIFICATION Reuters

MGM China's CEO, Grant Bowie, said Hengqin was a big plus for Macau and would be key to enhance engagement between mainland China and Macau.  "Its greater land area allows other tourism, leisure and recreational assets to be introduced to support the diversification of Macau, which would not be possible in Macau," he said.  Robert Drake, CEO of Galaxy Entertainment, said Galaxy was interested in investing in Hengqin and will explore options there.  In a push to lure investment to Hengqin, China is granting tax benefits to companies that operate in targeted industries and will grant duty-free status for imported goods.

 

"We are encouraging all foreign companies to come, like Walmart for example, but just no casinos," said Zhao Zhen Wu, a Chinese government director working on the development of Hengqin.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - November 28, 2011

 

Don’t forget that last week was the worst Thanksgiving week for US stocks since 1932. The S&P500 would have to close > 1203 for us to not be selling on green today.  As we look at today’s set up for the S&P 500, the range is 52 points or -1.35% downside to 1143 and 3.14% upside to 1195. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels and trends 1128

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -385 (+1947) 
  • VOLUME: NYSE 441.77 (-49.57%)
  • VIX:  +34.47 +1.44% YTD PERFORMANCE: +94.20%
  • SPX PUT/CALL RATIO: 1.88 from 2.16 (-13.09%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 50.78
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.97 from 1.89   
  • YIELD CURVE: 1.69 from 1.63

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: Oct. new home sales, est. 313k, prior 313k
  • 10:30am: Nov. Dallas Fed Manufacturing activity, est. 5.0, prior 2.3
  • 11am: New York Fed releases 3Q report on household debt
  • 11am: Fed to purchase $4.25b-$5b in notes/bonds
  • 11:30am: U.S. to sell 3-mo., 6-mo. bills

 

WHAT TO WATCH: 

  • U.S. retail sales up 16% to record $52.4b over Thanksgiving weekend; National Retail Federation. Cyber Monday takes place
  • German Finance Minister Wolfgang Schaeuble urged fast-track treaty changes to tighten budget discipline to calm markets
  • Biggest bond dealers in U.S. say Fed is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

COMMODITIES – same Global Macro trade (Correlation Risk) that’s associated with the USD; what went down last week goes up this morning (with the USD down) – important immediate-term TRADE lines of resistance we are watching are Gold $1726 and Copper $3.45. If both fail there, both are shorts.

 

  • Raw Materials Topping Equities With Growth Intact: Commodities
  • Seaway Pipeline Creates Contango With Oil Glut: Energy Markets
  • Ternium, Tenaris Buy $2.7 Billion Stake in Usiminas
  • Oil Climbs to Highest in a Week on U.S. Sales, Syrian Sanctions
  • Gold Gains as IMF Loan Report Helps Euro, ETP Holding at Record
  • Oil Advances a Second Day on Economic Outlook, Syrian Sanctions
  • Copper Advances Most in Two Weeks on Record U.S. Holiday Sales
  • U.K. Power Use Drop ‘Symptomatic’ of Economy: Chart of the Day
  • Baosteel Cuts Costs With Biggest Corporate Dim Sum: China Credit
  • BHP Billiton Names Kerr to Succeed Vanselow as CFO
  • Ruble Bears Lifting Swap Rates Lure Uranium One: Russia Credit
  • Commodities Advance on Signs Europe Seeking to Contain Crisis
  • Codelco Cuts 2012 Copper Fees to S. Korea After China, Japan
  • Posco to Post Record Stainless Steel Production This Year
  • U.K.’s Osborne Said to Aid Steel, Aluminum Producer Energy Costs
  • Iraq Signs $17 Billion Gas Agreement With Shell, Mitsubishi
  • China Sharpens Food-Safety Fight, Condemns Man for Contamination
  • Wheat, Corn Gain on Optimism European Leaders May Stem Crisis
  • Gold Gains as Dollar’s Decline May Spur More Investment Demand

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

CURRENCIES


EURO – immediate-term TRADE oversold at 1.32 is as oversold does (we covered our Euro short there) – now you get the bounce back up toward a lower-high of immediate-term resistance (1.34). Take your time with this and use the USD as your front-runner to fade the Global Macro market’s beta

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

ASIA – mini-meltup in the markets that have been going down the most (HK, India, Korea – all up +2-3% overnight) as China and Indonesia didn’t care much to rally at all (closing up 0.12% and 0.27%, respectively). Asian Growth is still slowing and all Asian markets remain in Bearish Formations (bearish on all 3 of my risk management durations)

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

The Hedgeye Macro Team

Howard Penney

Managing Director

 

 

 

 


Available Cash

This note was originally published at 8am on November 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Desire is proof of the availability.”

-Robert Collier

 

As I grind through the end of Sylvia Nasar’s “Grand Pursuit” this weekend, I’m looking forward to the most talked about book in the high-halls of intellectual hockey-head thought – Dan Kahneman’s recently published “Thinking, Fast and Slow.”

 

I love everything about that title. Being an amateur writer whose first English paper at Yale was deemed “un-grade-able”, I think the punctuation (using a comma) of the title provides a lesson for everyone in this business. Thinking is important – sometimes you need to do it fast. Sometimes you need to do it slow. Risk waits for no one.

 

Thinking back to his prior works in the 1970s (a period Bernanke should familiarize himself with), Kahneman (and Tversky) did a psychological experiment called the “Availability Heuristic” which essentially “operates on the notion that if you can think of it, it must be important.” (Wikipedia)

 

Can you think of anything going on in Europe right now?

 

Of course you can. That’s all the financial media talks and writes about every day. South Park’s Trey Parker must have Blame Europe in the works, right?

 

Right?

 

How many Old Wall Street meetings and/or interviews have you observed in recent months where the person speaking ends what they are saying with the word “right?”

 

Right?

 

That’s the business we are in. Whether people want to admit it or not, groupthink in our economic outlooks, politics, and choice of words is pervasive. Too Big To Think?

 

Back to the Global Macro Grind

 

The reason why Global Equities have been going down since Q1 of 2011 has a lot more to do with Global Growth Slowing than it does anything else. If you got US and Global Growth right at the beginning of 2011, you’re having a good year.

 

This morning’s Global Macro data continues to hammer home the deep simplicity of this fundamental research point:

  1. China’s flash HSBC Producer Manufacturing Index (PMI) dropped again, sequentially, to 48 in NOV vs 51 OCT
  2. Hong Kong’s Consumer Price Inflation (CPI) remained elevated at +5.8% y/y in OCT (inline with SEPT)
  3. Germany’s manufacturing PMI dropped again, sequentially, to 47.9 in NOV vs 49.1 OCT

Oh, that last point is about Europe. Right.

 

Well the inconvenient truth is that Globally Interconnected Macro markets aren’t all about Europe. Asian Growth Slowing and USD Correlation Risk would be 2 of the Top 3 (next to Europe) that any objective global analyst has to be proactively prepared for.

 

Get the US Dollar right, and you’ll get The Correlation Risk right.

 

On our immediate-term TRADE duration, here’s how inversely correlated the US Dollar Index remains to the big stuff moving markets:

  1. SP500 = -0.83
  2. EuroStoxx600 = -0.89
  3. CRB Commodities Index = -0.79
  4. 10-year US Treasury Yield = -0.72

Anyone who trades stocks or commodities gets points 1 through 3, but point 4 is a stealth reminder that the US Bond Market had US Growth Slowing right throughout the entire US Equity and Global Commodity head-fake rallies of October 2011.

 

With the US Dollar strengthening again intraday yesterday, that’s partly why I sold my Gold position and took my allocation to Cash in the Hedgeye Asset Allocation Model back up to 67% from 58% day-over-day.

 

Gold is one of the most over-owned, over-valued, “asset classes” left in Global Macro markets.

 

Right?

 

With Gold’s immediate-term TRADE correlation to the US Dollar becoming more intense (-0.49 last) and the hedge fund community under liquidation pressure again here in November (the industry doesn’t do well when stocks and commodities stop going up), booking a small -3.6% loss in Gold makes me more comfortable than taking a predictably larger one.

 

In the meantime, Available Cash remains King. That’s a 2011 Availability Heuristic you’ll be talking about over Thanksgiving dinner.

 

My immediate-term support and resistance ranges for Gold (bearish TREND resistance = $1724/oz), Brent Oil (Bearish Formation), France (Bearish Formation), Hong Kong (Bearish Formation), and the SP500 (Bearish Formation) are now $1670-1724, $105.67-109.59, 2801-3003, 17801-18556, and 1177-1198, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Available Cash - Chart of the Day

 

Available Cash - Virtual Portfolio


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