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Bullish Formation: SP500 Levels, Refreshed

Takeaway: The Risk Range is tight – if 1466 breaks, first line of support is 1456.

POSITIONS: 11 LONGS, 8 SHORTS @Hedgeye

 

This is what Bullish Formations do, they frustrate people inasmuch as bearish ones do.

 

They get overbought and they get oversold. This one was overbought, then corrected (briefly), and isn’t as overbought as it was.

 

Overbought doesn’t always happen at the same price. Time, Volume, and Volatility signals all matter – so does the catalyst calendar. It’s a lot, but managing beta risk isn’t for rookies either.

 

Across our core risk management durations, here are the lines that matter to me most:

 

  1. Immediate-term TRADE overbought = 1478
  2. Immediate-term TRADE support = 1466
  3. Intermediate-term TREND support = 1421

 

In other words, the Risk Range is tight – and I like it tight, because that makes our job easier before it becomes more difficult again (it will). If 1466 breaks, first line of support is 1456.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish Formation: SP500 Levels, Refreshed  - SPX


JPM: A Solid Quarter

JP Morgan (JPM) released its Q4 2012 earnings this morning and overall, the numbers were solid. The company earned $1.39 vs. expectations for $1.20. We estimate core earnings were closer to $1.16, which adjusts for all of JPM's itemized one-time items as well as its reserve release. Net interest margin (NIM) fell three basis points but was in-line with estimates and much better than its peers such as Wells Fargo (WFC).

 

Though the stock currently trades near the high end of its range over the last few years, it’s still trading a 16% discount to fair value of $53.89. There’s room for upside with JPM’s stock, even after an impressive quarter.

 

JPM: A Solid Quarter - tbvps jpm normal


Moving With The Markets

Client Talking Points

Cover Up And Buy

Our Q1 2013 Global Macro Themes call was yesterday and we’re pleased that our subscribers and Twitter followers enjoyed what we had to say. Our three themes - #GrowthStabilizing, #HousingsHammer and #QuadrillYen - are all key pieces of solving the global macro puzzle. With the market moving up, we covered our Metals (XME) and Phillip Morris (PM) shorts and bought Apple (AAPL) and Singapore (EWS). The Apple trade is one we really like. The media twirls itself into such a frenzy over newsflow that it fails to see the bigger picture. We bought on red and like Apple in the range of $492 to $518 a share. 

Asset Allocation

CASH 46% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

ADM

ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

“Goldman really cut comp big time in 4Q. It was just 21% of revenue, about half of what the firm usually pays people. $GS” -@LaurenLaCapra

QUOTE OF THE DAY

“All things are difficult before they are easy.” -Dr. Thomas Fuller

STAT OF THE DAY

U.S. consumer price index remain unchanged in December, unadjusted CPI index at 229.601


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THE M3: SANDS CHINA DIVIDEND; OKADA FBI PROBE; MELCO TROUBLE; SMOKING BAN; 4Q TPI... MORE

The Macau Metro Monitor, January 16, 2013

 

 

SANDS CHINA TO CONSIDER DIVIDEND macaubusiness.com

Sands China's board of directors will meet on January 25th to consider the payment of an interim dividend

 

OKADA FACES FBI PROBE ON PHILIPPINES LICENSE: PAGCOR BOSS bloomberg

Okada is now facing a FBI investigation on how he obtained a gaming license in the Philippines. “We were informed of the FBI investigation and we are always open to agencies that would like to investigate,” Mr Naguiat, the chairman and CE of PAGCOR told Bloomberg.

 

DOUBLE TROUBLE macaubusiness.com

The CEO of MCE, the unit of Melco Crown being investigated for illegal money transfers between Taiwan and Macau, is also name in a separate litigation in the United States.  Clarence Chung Yuk Man, the CEO of MCE, was the target of a suit filed in the US in 2010 by several large shareholders alleging  “false misleading statements” made between 2007 and 2008 about a slot business operated by the company.

 

TOO SOON TO REVIEW CASINO SMOKING BAN: CHEUNG U macaubusiness.com

While its too early to evaluate the impact of the smoking ban, the Macau Gaming Industry Workers Association has suggested casino operators give some concessions to croupiers working in smoking areas, including an extra rest day or a cash allowance, plus fewer working hours.

 

TOURIST PRICE INDEX FOR THE 4TH QUARTER 2012 DSEC

The Tourist Price Index (TPI) increased 4.45% YoY to 133.78 in 4Q12. Sectors with the the highest increase in the price index included: Clothing & Footwear (+16.46%); Transport & Communications (+7.15%); and Entertainment & Cultural Activities (+6.73%) on account of rising prices of handbags, as well as higher charges for outbound transport and entertainment services. Price index of hotel rooms decreased by 2.40% year-on-year.

 

CHUI GOES TO BEIJING TO DISCUSS NEW BORDER CHECKPOINT macaubusiness.com

CE Fernando Chui Sai On will be heading to Beijing from January 21-23rd, to discuss the construction of the new border checkpoint between Macau and Zhuhai.  The border is expected to function 24 hours a day and handle the flow of 250,000 daily crossings. 


JPM: QUICK TAKE ON 4Q12 RESULTS

Takeaway: $JPM 4Q12 results were solid on multiple fronts, and the stock still looks undervalued by 16% to us.

JPM's 4Q12 Results - Steady Progress

Overall, we found the JPM 4Q numbers solid. The company earned $1.39 vs. expectations for $1.20. We estimate core earnings were closer to $1.16, which adjusts for all of JPM's itemized one-time items as well as its reserve release. 

 

Reserve release was 19 cents, which was slightly higher than the 14 cents the Street was looking for. Nevertheless, on an apples-to-apples basis, we think they earned $1.16 vs. expectations for core earnings of $1.06. As such, we think this number should be enough to sustain the momentum we've seen YTD. 

 

Credit metrics were notably improved this quarter as net charge offs declined 65 bps QoQ, NPAs fell 4 bps, NPLs dropped 11 bps and reserve coverage rose 4% (reserves/NPLs) to 204%.

 

NIM ticked down 3 bps, but came in in-line with estimates and was a far cry better than WFC, and marks the second consecutive quarter in which JPM has significantly outperformed peers on NIM.

 

The bottom line is that tangible book value per share improved again this quarter, growing by 3.3% sequentially. Return on capital (tangible), meanwhile, came in at 14.8%, down slightly from last quarter's 15.7%. Growing tangible and improving returns should support further multiple expansion.

 

As we show in the chart below, the stock is trading near the high end of the range over the last few years, but based on where returns are relative to cost of capital, the stock is still trading at a 16% discount to fair value of $53.89, as we show in the second chart.

 

We highlight the key takeaways, as well as our macro team's levels on JPM, in the four charts below.

 

 

 

JPM: QUICK TAKE ON 4Q12 RESULTS - tbvps jpm

 

JPM: QUICK TAKE ON 4Q12 RESULTS - jpm quadrantizer

 

JPM: QUICK TAKE ON 4Q12 RESULTS - jpm earnings template

 

JPM: QUICK TAKE ON 4Q12 RESULTS - JPM LEVELS

 

 

Joshua Steiner, CFA


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 16, 2013


As we look at today's setup for the S&P 500, the range is 12 points or 0.50% downside to 1465 and 0.32% upside to 1477.           

                                                                                                                    

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10b


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.56 from 1.49
  • VIX  closed at 13.55 1 day percent change of 0.22%
  • BONDS – the 10yr UST yield is bullish TRADE/TREND (1.71-1.81% support) and bearish TAIL (1.84% resistance) right now, which is perfectly confusing the market, as it should – any time we start to whip above/below the big duration lines, people get confused. We say you stay w/ the TREND = buy stocks on red, short t-bonds on green.

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:00am: MBA Mortgage Applications, Jan. 11 (prior 11.7%)
  • 8:30am: CPI, M/m, Dec., est. 0.0% (prior -0.3%)
  • 8:30am: CPI Ex Food/Energy, M/m, Dec., est. 0.2%
  • 9am: Net TIC Flows, Nov. (prior -$56.7b)
  • 9am: Net L-T TIC Flows, Nov., est. $25.3b (prior $1.3b)
  • 9:15am: Industrial Production, Dec., est. 0.3% (prior 1.1%)
  • 9:15am: Capacity Utilization, Dec., est. 78.5% (prior 78.4%)
  • 10am: NAHB Housing Market Index, Jan., est. 48 (prior 47)
  • 10am: Fed’s Kocherlakota speaks in Eden Prairie, Minn.
  • 10:30am: DoE inventories
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2042 sector
  • 2pm: Fed issues Beige Book business survey
  • 7pm: Fed’s Fisher speaks in Washington
  • 8pm: Fed’s Kocherlakota speaks in Minneapolis on policy

GOVERNMENT:

    • Senate not in session, House in session
    • SEC Commissioner Dan Gallagher gives 2013 outlook for agency
    • President Obama to unveil proposals to curb gun violence

WHAT TO WATCH

  • All Nippon Airways, Japan Airlines grounded entire fleet of Boeing Dreamliners; will cancel all Dreamliner ops tomorrow
  • India regulator to check 6 Dreamliners in Air India’s fleet
  • World Bank cuts 2013 global growth forecast to 2.4%
  • AB InBev said in talks w/ U.S. on concessions for Modelo
  • Ford CFO forecasts greater than $1.5b European loss in 2013
  • Alibaba said to hire Credit Suisse, Goldman for $3b-$4b IPO
  • Apple introduced installment payment plans in China
  • Temasek, CPPIB may invest in Dell alongside Silver Lake: FT
  • Temasek spokesman declines to comment on report
  • TUI Travel in talks with Airbus, Boeing on potential $6b plane order: Reuters
  • European Dec. car sales fell 16%, demand at Ford, GM, Renault
  • Wausau Paper continuing talks w/ Starboard after co. declined offer to sign non-disclosure

 EARNINGS:

    • Bank of New York Mellon (BK) 6:30am, $0.53
    • Comerica (CMA) 6:40am, $0.65
    • US Bancorp (USB) 6:45am, $0.75
    • First Republic Bank/CA (FRC) 7am, $0.73
    • JPMorgan Chase (JPM) 7am, $1.22 - Preview
    • Northern Trust (NTRS) 7:14am, $0.75
    • Goldman Sachs (GS) 7:30am, $3.66 - Preview
    • M&T Bank (MTB) 8:01am, $2.17
    • Charles Schwab (SCHW) 8:45am, $0.15
    • Kinder Morgan Energy Partners (KMP) 4:05pm, $0.63
    • Kinder Morgan (KMI) 4:05pm, $0.35
    • El Paso Pipeline (EPB) 4:07pm, $0.55
    • eBay (EBAY) 4:15pm, $0.69
    • SLM (SLM) 4:15pm, $0.53
    • Clarcor (CLC) 5:21pm, $0.70
    • HB Fuller Co (FUL) 5:49pm, $0.56
    • Bank of the Ozarks (OZRK) 6pm, $0.56
    • CVB Financial (CVBF) 6:45pm, $0.22

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


OIL – what we didn’t like about commodity reflation 24hrs ago, we like this morning – Oil, Gold, Copper all stopped going up again at lower-highs (Dollar Up), which is a bullish global #GrowthStabilizing signal. Brent’s TAIL risk line of $111.48 is what matters most.

  • Oil Trades Near One-Week Low as U.S. Crude Inventories Increase
  • Carrara Marble Peaks as Russians Follow Etruscans: Commodities
  • Bundesbank to Repatriate 674 Tons of Gold to Germany by 2020
  • Wheat Rises to Three-Week High as Dry Weather Threatens Crops
  • OPEC Cuts Oil Output to 14-Month Low Amid Economic Uncertainty
  • Copper Declines for Fourth Day Before U.S. Production Figures
  • NWR Selling Eurobonds as Yield on Coal Producer’s Debt Hits Low
  • Cocoa Slides on Demand as Crop Outlook Improves; Sugar Unchanged
  • Platinum Getting More Precious on Tight Supply: Chart of the Day
  • Goldman Sachs Prefers Copper, Palladium, Metallurgical Coal
  • U.S. Oil-Product Exports Exceed 2009 Imports to Drive Ship Surge
  • Icahn’s Transocean Buy Pushes Driller Toward Partnership: Energy
  • Louis Dreyfus Joins With Australia’s Namoi Cotton to Boost Sales
  • Gold Swings Between Gains and Declines on Debt, Growth Concerns

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


YEN – Currency War is on. After getting lit up like a Christmas tree, the Yen just bounced for 2-days (Nikkei down -2.6% overnight on that as Government Intervention ramps implied market volatility), so we’ll be looking to re-short the Yen inside of $88 (vs USD) if/when we get that signal today. This is just wild to watch.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


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