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Squeezy: SP500 Levels, Refreshed

POSITIONS: Long Consumer Discretionary (XLY), Consumer Staples (XLP) and Utilities. Short Russell 2000 (IWM).

 

While the short squeeze (see chart) from my long-term TAIL breakout line (1267) has been proactively predictable, the short squeeze you’re seeing at the top of this immediate-term TRADE move in certain high-short interest stocks/ETFs/etc has been epic.

 

In the very immediate-term (I mean 3 trading hours to 3 days) this is where the Pain Trade tends to capitulate – more so in certain stocks than the stock index. Ultimately, provided that the US Dollar strength and US employment improvement continues, I think we’re headed toward a 1363 test. That will take more time.

 

For now, here are the lines I want to be managing gross and net exposure risk around: 

  1. Immediate-term TRADE overbought = 1314
  2. Immediate-term TRADE support = 1293
  3. Long-term TAIL support = 1267 

Another way to think about this is in terms of your beta-adjusted gross and net exposure. On the way towards 1314, you want to beta-shift to lower beta long positions, and take a few shots at higher-beta shorts that have been squeezed.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Squeezy: SP500 Levels, Refreshed - SPX


HBI: Shorting

Keith re-shorted Hanesbrands this morning – again -- on strength. It remains one of our top intermediate-term shorts.

 

HBI: Shorting - HBI TTT


Trade Update: Shorting EUR/USD (FXE)

Positions in Europe: Short FXE


Keith shorted the EUR/USD via the eft FXE today in the Hedgeye Virtual Portfolio with the price bumping up against our immediate term TRADE resistance level of $1.29. Our bearish view on the EUR and bullish view on the USD haven’t changed, but the price did. Keith took the opportunity to short FXE at $128.28. Our intermediate term TREND resistance level remains broken at $1.33 (see chart below).

 

Matthew Hedrick

Senior Analyst

 

Trade Update: Shorting EUR/USD (FXE) - 1. EUR heut


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BBBY Trade Update

Keith just added to our BBBY short position. Lower long-term highs in one of our favorite names on the short side, Bed Bath & Beyond. After being big bulls, we’re starting to question the sustainability of longer-term market share opportunity.

 

BBBY Trade Update - bbby TTT


CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK

Claims Have Become an Significant 1H12 Tailwind to Bank Credit Quality and Loan Growth

The headline initial claims number fell 47k WoW to 352k (down 50k after a 3k upward revision to last week’s data).  Rolling claims fell 3.5k to 379k. On a non-seasonally-adjusted basis, reported claims fell 125k WoW to 522k. For those unfamiliar with why we publish on claims every week, it's because they're the best indicator for how credit quality and loan growth trends are likely to fare over the next six months.

 

This morning's claims print is obviously strong. It also flies in the face of what we've seen in the last few years: claims tend to be weak in the start of the year. After the prior week's disappointing print, this week's print seems to lay to rest concern about an imminent back up in claims. We've pointed out that claims that are sustainably below the 385-400k range foster unemployment declines. While the unemployment rate is as much about the participation rate as the number of folks with jobs, the reason we think it matters is as a signal to broader confidence. As the unemployment rate falls it signals to the average American that things are improving, and that they should feel more confident about spending. In other words, it becomes an autocorrelated virtuous cycle.

 

We've also pointed out that an cointegrated relationship exists between claims and the S&P500. They don't stay diverged for long. It would seem that, just like last Fall, this time around the mean-reverting instrument is again the market. Full mean reversion from the market side would imply an index level around ~1360. Alternatively, claims would need to rise to ~410k to meet the market where the market is. 

 

CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK - Rolling

 

CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK - Raw

 

CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK - NSA chart

 

CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK - S P and Claims  2

 

CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK - Claims and Fed

 

2-10 Spread

The 2-10 spread tightened less than 1 bp versus last week to 167 bps as of yesterday.  The ten-year bond yield also fell less than 1 bp to 190 bps.

 

CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK - 2 10 spread

 

CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK - 2 10 spread QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

 

CLAIMS NOW A REAL TAILWIND FOR 1H12 CREDIT OUTLOOK - Subsector performance

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser.

 


THE HBM: MCD, SBUX, CBOU, TXRH, BWLD

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Jobless Claims

 

Initial jobless claims dropped to 352k for the week ending January 14th versus 384k consensus and 402k (revised from 399k) the week prior.

 

THE HBM: MCD, SBUX, CBOU, TXRH, BWLD - claims 119

 

 

Comments from CEO Keith McCullough

 

Note: my headlines that matter YTD have less and less to do with Europe – rest of the world matters too:

  1. CHINA – get the slope of the money supply and lending cycle in China right (finally easing instead of tightening), you’ll get a lot of things Chinese Growth right. Shanghai Comp and Hang Seng both up another +1.3% respectively overnight on “news” that China’s top 5 banks are going to ease lending reqs. End of the world thesis = bad YTD.
  2. RATE CYCLE – this is something I talked about a lot in clients meetings in NYC for the last 2-days. This is very bullish for the US Dollar in terms of monetary policy differentials – all of Asia and Latin America are in easing mode after being hawkish while Bernanke should have been (throughout 2010). Brazil just cut by another 50bps; Philippines cut for 1st time since 09 (joining Indonesia, Thailand, Australia, etc). Bullish for Global Equities vs 2011.
  3. COPPER – when the Doctor gives me the signal, I listen. That breakout my model signaled last week > $3.45/lb was as pure as a cold Canadian beer on the 1st of July. Copper up another +1.4% this morning in what should be considered nothing short of a massive squeeze = +11% YTD.

 

The only really bad news in my notebook this morning is Larry Summers being considered to run the World Bank.

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: MCD, SBUX, CBOU, TXRH, BWLD - subsector fbr

 

 

QUICK SERVICE

 

MCD: McDonald’s U.S. December sales were “robust” according to a survey of McDonald’s franchisees carried out by Janney.

 

MCD: McDonald’s has raised prices for some items in China

 

SBUX: Starbucks may open its first store in India in 2H12.

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

CBOU: Strong showing at ICR and lower coffee prices helping this company.

 

 

CASUAL DINING

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

TXRH: Shrugging off the downgrade from Tuesday to outperform casual dining.

 

BWLD: Declining on accelerating volume in a strong up tape yesterday.

 

THE HBM: MCD, SBUX, CBOU, TXRH, BWLD - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


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