Bullish TAIL Overbought: S&P Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY), Long Utilities (XLU), Short Russell2000 (IWM)


If you know me and my model well enough, you knew this message was coming. In the 1 range, US Equities are immediate-term TRADE overbought within this newly established Bullish TAIL Formation. That’s why I finally have a US Equity Index/ETF short position. It’s time to hedge.


Hedging for a potential 2.5% drawdown to test the 1267 TAIL is all I am thinking about here (see chart). I’d consider that probable. If it doesn’t happen, it was still probable by my definition. In order to prevent the probable, 1280 needs to hold (immediate-term TRADE support). And in order for that to happen, I think Jaime Dimon now has to deliver on what have become heightening expectations into his conference call tomorrow (JPM).


We do not think the quality of the Money-Center Banks earnings is going to be healthy. No that’s not an genius statement – but neither is assuming that risk isn’t priced dynamically ignoring the markets time and price.




Keith R. McCullough
Chief Executive Officer


Bullish TAIL Overbought: S&P Levels, Refreshed - SPX

Hedgeye Happy Hour Tonight


Join us in welcoming another winning New Year this evening from 6:00 to 9:00 PM. The celebration will take place at the Sake & Shochu Lounge at Zengo Restaurant, located on 622 Third Avenue at 40th Street, New York NY.


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Best Wishes,

The Hedgeye Macro Team






Initial Claims


Initial jobless claims came in at 399k versus 375k consensus and 375k (revised up 3k) the week prior.


THE HBM: SBUX, CMG - initial claims



Comments from CEO Keith McCullough


The manic attempting to do macro have not realized that the European bond auctions are not where the game is at right now. Squeeze:

  1. CHINA – the biggest Global Macro risk management shift of the last 3 wks has been both China’s high-frequency economic data and the reactions in both the China local and H-shares markets; China reported a CPI level of +4.1% DEC (inline w/ our estimate) – that’s down 10bps vs last mth and, more importantly = 15mth low. Chinese stocks +3.5% for 2012 YTD and we’re long them (CAF) + EWH.
  2. INFLATION – there’s a big difference b/t Q2 of 2011 levels of global food/energy inflation and what you are seeing around the world now – a sequential DEFLATION OF THE INFLATION = big Q1 Macro Theme for us that I went through in the slide deck yesterday. This should continue to auger bullish for both Global Consumption and for the stocks that react to it. Germany’s CPI benign for DEC at 2.1%.
  3. COPPER – the Doctor’s signal that I gave you yesterday was a pure one = breakout > intermediate-term TREND line support of 3.45/lb and obviously getting squeezed to immediate-term TRADE overbought here (3.59 last), but this is one of the epicenters of what’s been a royal short squeeze of everything that didn’t work in NOV/DEC (Financials, Basic Materials, Pandora – the list is long).


All of this, of course, builds into a crescendo of short covering at another immediate-term top for the SP500. I have that at 1299, so sell there, and re-load your gross exposure on what’s going to be another inevitable correction towards 1277.





THE HBM: SBUX, CMG - subsector fbr





SBUX: Starbucks is maintaining a coffee sourcing MOU it has with India’s Tata Coffee Ltd. after India’s government formally removed the limit on foreign investment in single-brand retail.


SBUX: Starbucks target increased to $52 from $47 at UBS.


CMG: Chipotle is starting construction on a second ShopHouse restaurant in a contiguous trade area to the current location.


THE HBM: SBUX, CMG - stocks



Howard Penney

Managing Director


Rory Green



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