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Trade Update: Covering France (EWQ)

Keith covered France via the etf EWQ in the Hedgeye Virtual Portfolio, managing immediate term TRADE risk (range) of the position. The CAC40 is now holding its TRADE support at 3,076. Intermediate term TREND resistance in the CAC40 is 3,271 (see chart below).

 

Trade Update: Covering France (EWQ) - 1. CAC heut

 

Despite the updated TRADE signals, we remain bearish on France over the intermediate term due to the continuing factors of:

  • Pending downgrade of France’s AAA Sovereign Credit rating
  • Public debt rising through the 90% (as a % of GDP)
  • Slowing growth (below the government’s 1% 2012 projection) and sticky inflation alongside Austerity’s Bite  = Stagflation
  • Banking risk, including any difficulties for its major banks (BNP, Credit Agricole, SocGen) to raise capital to the 9% Core Tier 1 ratio (see Unicredit for a preview!), and sovereign risk as France is the largest holder of Italian public debt and private debt, according to BIS
  • EFSF and IMF are undercapitalized to materially aid any potential sovereign and banking bailout needs of France
  • High unemployment rate of 9.8% (versus 7% in Germany); 22.8% among the French youth
  • Smaller export profile (versus Germany), so there’s less benefit to grow via exports 

Faux Pas

 

Today Sarkozy met with Merkel in Berlin to discuss among other issues, a financial transaction tax. Sarkozy got a light nod from Merkel in her comment, “Personally, I’m in favor of thinking about such a tax in the Eurozone”, yet there’s no indication the either the Eurozone (17) or the EU (27) will vote to follow suit. Sarkozy’s willingness to go-at-it-alone approach, particularly given the very public push-back from with the British under Cameron, is a false step in our opinion. Sarkozy’s positioning is surely connected to his re-election desires, however a financial transaction tax, especially in a go-at-it-alone-approach, is an anti-competitive move that would not only cost the French banking sector dearly, but the economy at large.

 

Matthew Hedrick

Senior Analyst


WHICH GOP CANDIDATE DOES THE MARKET PREFER?

WHICH GOP CANDIDATE DOES THE MARKET PREFER?

Bullish TAIL: SP500 Levels, Refreshed

POSITIONS: Long Consumer Discretionary (XLY), Long Consumer Staples (XLP), Long Utilities (XLU)

 

Being longer works when the market goes up. I know, it’s the stuff of genius.

 

I thought I was some version of a genius circa 2004-2006 when I was getting paid too much because everything I’d buy would be rumored to be LBO’d. Now some of those companies are bankrupt. Thinking we’re smarter than the market is cyclical.

 

Today, I’m much more comfortable Embracing Uncertainty and letting the market tell me what to do. My governor in that regard is my TRADE/TREND/TAIL risk management process. I built it to govern my own illusions of intellect.

 

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

  1. TRADE resistance = 1291
  2. TRADE support = 1269
  3. TAIL support = 1267 

In other words, my new immediate-term TRADE range = 1 and that’s bullish because the range is above my long-term TAIL (1267).

 

What would change my positioning? Price, volume, and volatility signals. But they haven’t changed yet.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish TAIL: SP500 Levels, Refreshed - SPX


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STRONG START TO JANUARY IN MACAU

On track for HK$24-25BN in January

 

 

Macau generated average daily table win of HK$782 million in the first 8 days of the month versus HK$706 million in December.  The first week definitely received a boost from December 31st being counted in January but we’ve also heard the mid-week performance was strong.  Remember that the Chinese New Year celebration will take place in January of this year versus February of last year so the comp is relatively easy.  Nevertheless, we expect that the accelerated growth rate from December’s GGR YoY increase of 25% should be received warmly.  We’ve seen at least one estimate of 50% YoY growth for January but we think that is too aggressive and not consensus.  We are maintaining our expectations of HK$24-25 billion, which would represent +32-40% YoY growth.  The higher end of that range looks more likely given the strength of the first 8 days.

 

STRONG START TO JANUARY IN MACAU  - adtr

 

While market share is pretty irrelevant after only one week of data, LVS was definitely the standout.  We surmise that VIP volumes and hold played a role in the first week.  Rather than focus on share, the early January results should be taken as a positive for all the Macau operators.  MPEL remains our favorite through earnings season given the magnitude of the earnings beat we are expecting for Q4 and the likely improved sentiment as January continues to come in hot.

 

STRONG START TO JANUARY IN MACAU  - 1


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 9, 2012


As we look at today’s set up for the S&P 500, the range is 21 points or -0.85% downside to 1267 and .80% upside to 1288. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - chart1f

 

THE HEDGEYE DAILY OUTLOOK - chart 2

 

THE HEDGEYE DAILY OUTLOOK - chart 3f

 

 

EQUITY SENTIMENT:

 

  • ADVANCE/DECLINE LINE: -200 (656) 
  • VOLUME: NYSE 710.51 (-14.3%)
  • VIX:  20.63 -3.96% YTD PERFORMANCE: -11.81%
  • SPX PUT/CALL RATIO: 1.40 from 1.62 (-13.58%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 57.64
  • 3-MONTH T-BILL YIELD: 0.0%
  • 10-Year: 1.97 from 1.96
  • YIELD CURVE: 1.727 from 1.702

 

MACRO DATA POINTS (Bloomberg Estimates): 

  • 11:30am: U.S. to sell $29b 3-mo., $27b 6-mo. bills
  • 12:40pm: Fed’s Lockhart to speak on economy in Atlanta
  • 3:00pm: Consumer Credit, Nov., est. $7b (prior $7.6b)

 

WHAT TO WATCH

  • German Chancellor Angela Merkel, French President Nicolas Sarkozy meet today in Berlin to discuss euro rescue plan
  • Alcoa marks the traditional kick-off of earnings season with report after the market close
  • Bristol-Myers Squibb agreed to buy Inhibitex for $2.5b to boost its position in hepatitis C medicines; watch Achillion
  • Johnson & Johnson goes to trial today facing demand by Texas for damages of more than $1b on Risperdal marketing
  • Nokia’s Lumia 900 Windows phone may be introduced today; watch for other announcements tied to Consumer Electronics Show
  • Other conferences this week include J.P. Morgan Health Care, North American International Auto Show in Detroit
  • Hungary PM Viktor Orban drops objection to IMF bailout, says his govt is open to “any kind” of credit line
  • Netflix starts service in U.K., Ireland, taking on Amazon.com’s Lovefilm
  • No IPOs scheduled to price

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


OIL – I thought oil would come down on a Tebow like move like this in the US Dollar Index. I thought wrong. Iran is the #1 story on Bloomberg’s most read this morning as Brent Oil remains > my long-term

TAIL line of $111.89 support (next resist = $115.21).

 

  • Speculators Increase Bullish Wagers Most Since ‘10: Commodities
  • Copper Declines on Concern Euro Crisis Is Affecting Economies
  • Goldman Sachs Remains “Overweight” Commodities; Favors Gold Commodities Market
  • Crude Oil Declines to Five-Day Low Before Merkel, Sarkozy Meet
  • Morgan Stanley Says Gold, Grains to Outperform Oil in 2012
  • Wheat Rises as Feed Demand May Build on Dry Argentine Weather
  • Sugar Rises on Index Weight Changes, MENA Demand; Cocoa Climbs
  • Gold May Extend Gains on European Crisis, Reliance Capital Says
  • Rice Exports From India May Surge as Ban Ends on Record Crop
  • Gold May Gain in London as Europe, Iran Concerns Spur Demand
  • Hedge Funds Resume Bullish Bets as Oil Tops $103: Energy Markets
  • Iran Able to Block Strait of Hormuz, General Dempsey Says on CBS
  • Ethanol Eats More Corn Than Cows as Herds Drop: Chart of the Day
  • COMMODITIES DAYBOOK: Hedge Funds Boost Bet on Commodity Gains
  • Gold Moving Average Signaling a Bear Market: Technical Analysis

 

THE HEDGEYE DAILY OUTLOOK - chart 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - chart 5

 

 

EUROPEAN MARKETS

 

ITALY – starting to diverge from Germany in more ways than just bond yields; this makes sense if Italian banks are at the back of a long line w/ Deutsche Bank and Commerzbank in front of them. Unicredit’s risk is now clear in the rear view mirror, but what does that mean for the broader Italian MIB Index? Looks safe to be short MIB with a 15,160 stop vs DAX long.

 


THE HEDGEYE DAILY OUTLOOK - chart 6

 


ASIAN MARKETS

 

CHINA – winning move for Chinese stocks overnight (we’re long), putting on their best 1-day gain in 3 months, closing up +2.9% to 2225 on the Shanghai Comp after a better sequential gain in Money Supply

Growth (M2 moves to +13.6% y/y); M2’s slope of acceleration/deceleration actually tracks Chinese Equities quite well.

 

THE HEDGEYE DAILY OUTLOOK - chart 7

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - chart 8

 

 

The Hedgeye Macro Team


THE M3: EVEN TABLE NUMBERS; VENETIAN MASS UPGRADE

The Macau Metro Monitor, January 9, 2012

 

 

EVEN-SPREAD TABLE NUMBERS, ASKS FRANCIS LUI Macau Business

According to Galaxy's vice chairman, Francis Lui Yiu Tung, Galaxy has no concerns that the opening of Sands Cotai Central could hurt performance at Galaxy Macau.  He says the government cap on live gaming tables is needed but wants an even spread of tables across the city’s six gaming operators so "they can compete on a more equal ground."  Mr Lui also confirms that Galaxy will offer three-star accommodation to attract more middle-class mainland visitors and look to expand into new Asian markets.

 

VENETIAN UPGRADES HIGH-LIMIT AREA Macau Business

The Venetian Macao this weekend unveiled its upgraded high-limit gaming area which features 66 live table games and 156 slot machines.  “Our new spaces will cater to our premium mass gaming guests and will set a new standard for a high limit gaming experience in Macau,” says Andrew Billany, senior vice president of Paiza and Plaza operations at Venetian Macao.


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 80.32%
  • SHORT SIGNALS 78.48%
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