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Time It Right

Client Talking Points

Go With The Flows

You can’t fight a tidal wave, but you can surf with it and use it to reach the beach. That’s what happens when fund flows move to US equities and the big asset managers start buying stocks. You might have a stock that seems like a great idea for a short and all of the math adds up...until it doesn’t, because some fund manager is buying a huge block of it and driving the price up. This is why timing is more important than ever right now. You can’t fight big beta, so embrace it and make sure that if you’re going to fight against the majority, you get the timing right.

Asset Allocation

CASH 52% US EQUITIES 12%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 6% 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

“I DON"T FLIPPING BELIEVE IT!! Mary Jo White has been nominated for head of the SEC. Another Lawyer who doesn't understand markets.” -@SapienQuis

QUOTE OF THE DAY

“Life isn't fair. It's just fairer than death, that's all.” -William Goldman

STAT OF THE DAY

US weekly jobless claims fall by 5000 to 330,000 in the week ended Jan. 19, the fewest since the same week in 2008.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 24, 2013


As we look at today's setup for the S&P 500, the range is 17 points or 1.06% downside to 1479 and 0.08% upside to 1496.   

                                                                                                                            

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 - 10a


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.58 from 1.59
  • VIX  closed at 12.46 1 day percent change of 0.24%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Initial Jobless Claims, Jan. 19, est. 355k (prior 335k)
  • 8:30am: Continuing Claims, Jan. 12, est. 3.2m (prior 3.214m)
  • 8:58am: Markit US PMI, Jan. preliminary, est. 53 (prior 54)
  • 9:45am: Bloomberg Consumer Comfort, Jan. 20 (prior -35.5)
  • 10am: Leading Indicators, Dec., est. 0.4% (prior -0.2%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage change
  • 11am: DOE inventories
  • 11am: Kansas City Fed Manufacturing, Jan., est. 1 (prior -2)
  • 11am: Fed to buy $2.75b-$3.5b debt in 2020-2022 sector
  • 11am: U.S. Treasury to announce plans for sale of 2Y notes, 5Y notes, 7Y notes
  • 1pm: U.S. Treasury to sell $15b 10Y TIPS

GOVERNMENT:

    • Senate in session, House not in session
    • Nom. hearing for Sen. John Kerry, D-Mass., as Sec of State
    • Sen. Dianne Feinstein, D-Calif., to introduce gun legislation
    • U.S., Japan to sign amendment to bilateral income tax treaty
    • HHS, FDA meeting on public health benefits, risks of drugs containing hydrocodone, 8am
    • HHS, NIH meeting on H1N1/bird flu transmission and data management, 9am
    • Senate Health, Education, Labor and Pensions Cmte hearing on mental health system in America, 10am

WHAT TO WATCH

  • Apple plunges after sales forecast trails est.
  • Asian suppliers fall after Apple’s sales outlook
  • Commerzbank plans to cut as many as 6,000 jobs worldwide, Barclays said to plan 15% job cuts at Asian investment bank
  • Citigroup’s Corbat says pay environment to remain challenging
  • World Economic Forum in Davos continues
  • Delta Air Lines is talking to Airbus, Boeing on buying jets
  • Euro-area composite PMI contracts at slower pace than est.
  • Delphi considers ‘bolt-on’ acquisitions against paying dividend
  • North Korea threatens to conduct nuclear test
  • Three-month suspension of U.S. debt ceiling passed by House
  • FDA approves Roche’s Avastin with chemo for colorectal cancer

EARNINGS:

    • Cash America International (CSH) 6am, $1.20
    • Keycorp (KEY) 6am, $0.21
    • Stanley Black & Decker (SWK) 6am, $1.28
    • Knight Capital (KCG) 6am, $0.03
    • McCormick & Co (MKC) 6:30am, $1.14
    • Southwest Airlines Co (LUV) 6:45am, $0.07
    • Xerox (XRX) 6:51am, $0.29
    • AO Smith (AOS) 7am, $0.81
    • Colonial Properties Trust (CLP) 7am, $0.33
    • Hubbell (HUB/B) 7am, $1.20
    • International Speedway (ISCA) 7am, $0.56
    • National Penn Bancshares (NPBC) 7am, $0.17
    • Teledyne Technologies (TDY) 7am, $1.08
    • AmerisourceBergen (ABC) 7am, $0.67
    • Ametek (AME) 7am, $0.48
    • Baxter International (BAX) 7am, $1.26 - Preview
    • Celgene (CELG) 7am, $1.32
    • Dover (DOV) 7am, $1.07
    • EQT (EQT) 7am, $0.42
    • Raytheon (RTN) 7am, $1.31
    • EQT Midstream Partners (EQM) 7:05am, $0.40
    • Brunswick (BC) 7:30am, $(0.08)
    • Fairchild Semiconductor (FCS) 7:30am, $0.10
    • 3M Co (MMM) 7:30am, $1.41 - Preview
    • Timken Co (TKR) 7:30am, $0.62
    • Airgas (ARG) 7:30am, $1.07
    • Bristol-Myers Squibb Co (BMY) 7:30am, $0.42 - Preview
    • Kennametal (KMT) 7:30am, $0.64
    • Lockheed Martin (LMT) 7:30am, $1.82
    • United Continental Holdings (UAL) 7:30am, $(0.61)
    • Alaska Air Group (ALK) 8am, $0.71
    • Avnet (AVT) 8am, $0.83
    • Cypress Semiconductor (CY) 8am, $0.04
    • Meredith (MDP) 8am, $0.87
    • WW Grainger (GWW) 8am, $2.61
    • Janus Capital Group (JNS) 8am, $0.14
    • Precision Castparts (PCP) 8am, $2.47
    • Rayonier (RYN) 8am, $0.57
    • Union Pacific (UNP) 8am, $2.16
    • Coherent (COHR) 8:02am, $0.72
    • AVX (AVX) 8:30am, $0.15
    • Deluxe (DLX) 8:30am, $0.88
    • GATX (GMT) 8:30am, $0.54
    • OSI Systems (OSIS) 8:30am, $0.68
    • Old Republic International (ORI) 9am, $(0.05)
    • Informatica (INFA) 4pm, $0.37
    • Microsemi (MSCC) 4pm, $0.52
    • AT&T (T) 4:02pm, $0.45
    • Sterling Financial (STSA) 4pm, $0.52
    • Cirrus Logic (CRUS) 4pm, $1.41
    • JB Hunt (JBHT) 4pm, $0.70
    • Maxim Integrated (MXIM) 4pm, $0.41
    • Select Comfort (SCSS) 4:01pm, $0.32
    • Federated Investors (FII) 4:01pm, $0.40
    • Open Text (OTC CN) 4:01pm, $1.38
    • Flextronics (FLEX) 4:01pm, $0.20
    • Micros Systems (MCRS) 4:02pm, $0.58
    • Covance (CVD) 4:02pm, $0.71
    • Microsoft (MSFT) 4:02pm, $0.74
    • Starbucks (SBUX) 4:03pm, $0.57
    • VeriSign (VRSN) 4:04pm, $0.51
    • Cepheid (CPHD) 4:05pm, $(0.01)
    • E*Trade Financial (ETFC) 4:05pm, $(0.54)
    • Juniper Networks (JNPR) 4:05pm, $0.22
    • ResMed (RMD) 4:05pm, $0.52
    • Tempur-Pedic International (TPX) 4:05pm, $0.55
    • SVB Financial Group (SIVB) 4:14pm, $0.88
    • City National (CYN) 4:15pm, $1.00
    • Glacier Bancorp (GBCI) 4:15pm, $0.28
    • Synaptics (SYNA) 4:15pm, $0.45
    • KLA-Tencor (KLAC) 4:15pm, $0.56
    • QLogic (QLGC) 4:15pm, $0.17
    • Energen (EGN) 4:49pm, $0.74
    • Hancock Holding (HBHC) 5pm, $0.63
    • Iberiabank (IBKC) Late, $0.79

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


GOLD – both Apple and Gold bulls will be as quiet as NFLX bears this morn; some serious pin action in names where consensus has very strong views; Our AAPL TAIL risk line of $561 remains intact (no position); Gold failed, fast, at $1692 TREND resistance yesterday, and Netflix, well, just look at it if you want to feel like it’s 1999.

  • Gold Seen Extending Rally as Fed’s QE3 to Last Through 2014
  • Sugar Rush Leaves U.S. With Biggest Glut in Decade: Commodities
  • Copper Declines as Codelco Adds to Indications of Ample Supply
  • Oil Trades Near One-Week Low on U.S. Supplies, Seaway Pipeline
  • Gold Drops to One-Week Low as Growth Outlook Curbs Haven Demand
  • Economist Gartman Sells Some WTI Oil and May Get Out Entirely
  • Iron Ore Seen Falling in Second Quarter as China Restocking Ends
  • Robusta Coffee Advances on Stockpiles, Vietnam Crop; Cocoa Gains
  • Brazil Sugar at Ports Rises 23% as Ships Head to Algeria, India
  • China Tracks Errol Flynn to Tasmania in Quest for Wind: Energy
  • HSBC Cuts Gold Allocation on 3-Year and Six-Month View
  • China Zinc Output May Peak in 2015 as Project Pipeline Thins
  • Rubber May Extend Rally After Golden Cross: Technical Analysis
  • Zinc Mine Supply Growth May Slow During Next Eight Years

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


FRANCE – let’s not talk about Spain’s unemployment going up again (even though they make up the numbers, they still see unemployment rising to 26% in Q4 vs 25% prior); lets talk about the country everyone wants to be: France – French PMI for JAN gets spanked to 42.9 vs 44.6 in DEC (Services PMI down too, 43.6 vs 45.2 last mth), French #GrowthSlowing.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


ASIA – KOSPI down another -0.8% after snapping its TRADE line of support 2-days ago, taking the correction to -3.3% from the JAN high; something to watch alongside the Hang Seng (2 days of lower-highs) and Shanghai Comp that was also -0.8% overnight and also broke its TRADE line of 2308 support into the close.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


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THE M3: MSC LOAN; CZR IN KOREA

The Macau Metro Monitor, January 24, 2013

 

 

MELCO CROWN TO SIGN $1.4 BLN LOAN ON FRIDAY Reuters

On Friday, MPEL will sign the US$1.4 billion syndicated loan backing its Macau Studio City project which is expected to cost over $2.5 billion.  The loan was led by eight mandated lead arrangers and bookrunners, including Bank of China Macau, Industrial & Commercial Bank of China Macau, ANZ, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Credit Agricole CIB and UBS. 

 

The five-year deal is split into a US$1.3 billion amortizing loan and a US$100 million revolving credit. The loand has a rate of L+450bps plus commitment fees adding up to an all-in rate of L+483bps and a duration of 4.8 years.

 

CAESARS JOINS KOREAN CASINO PROJECT Macau Business

Caesars has joined Hong Kong-listed Lippo Ltd in a casino project in South Korea.  According to a Lippo statement to the Hong Kong Stock Exchange, the two companies agreed on Wednesday to the terms under which they will seek permission from the South Korean government to develop a casino resort in Incheon, a city near the country’s capital of Seoul.  Caesars will own 40% of the venture, Lippo will own 20%, and another partner will hold the remaining 40%.

 

 

 



Skinning Bears

“The skin of the bear must not be distributed until the bear has been killed.”

-Sir Winston Churchill

 

That’s what Churchill said after the Allies invaded Italy at Salerno in late 1943. If you’ve ever thought about trying to skin a bear yourself, locals from my neck of the woods would suggest you make sure it’s dead first too.

 

Risk management lessons in markets and in life tend to rhyme – if you practice common sense, that is. Some people get all religious about this stuff. Others practice some “technical” form of voodoo. I’m more into Churchillian-style strategic thinking myself.

 

During WWII, Churchill’s strategy was “to assign a larger importance to opportunism and improvisation, seeking rather to live and conquer in accordance with the unfolding event than to aspire to dominate often by fundamental decisions.” (The Last Lion, page 708)

 

Back to the Global Macro Grind

 

If your risk management strategy is to A) Embrace Uncertainty and B) react to changing probabilities based on time and price, you’ll be satisfied doing a whole lot of nothing sometimes. Waiting and watching is a risk managed choice.

 

That’s what we did heading into Apple’s (AAPL) earnings event. Since we didn’t have any fundamental “edge” on the quarter, and our risk management signal (Bearish Formation, TAIL RISK $561) said to stay away, any other decision would have been a gamble.

 

That doesn’t mean today’s reactions to AAPL (down -8%) or Netflix (up +30%) don’t present opportunities. And that’s the point. The great goals in my life have been scored when preparation meets opportunity. Patience is a virtue.

 

With the SP500 up for 6 consecutive days (up +4.8% YTD and +10.4% from its mid-November 2012 fiscal cliff freak-out closing low), plenty a stock market bear’s bum has been skinned – but has The Bear been killed?

 

If your answer to that is yes, you and I (and the T Bay locals) need to have a little chat about wild animals.

 

To review, there are 2 core components to what we do:

  1. Quantitative Risk Management (Signals, Factoring, etc.)
  2. Fundamental Research

On both, there are a few chinks in the bull’s growth horns this morning.

 

Quant Signals:

  1. KOSPI (-3.3% correction now from its YTD high) broke TRADE line support of 1985
  2. CHINA (Shanghai Comp), down -0.8% overnight, broke its immediate-term TRADE line of 2308
  3. JAPAN (Yen vs USD) failed to overcome 87.71 resistance again and is trading down hard, -1.2%
  4. Implied volatility in both the Yen and Japanese Equities is rising, fast
  5. Overbought signals across European Equities are being confirmed by lower immediate-term highs
  6. CRB Commodities Index failed at its long-term TAIL risk line of 306 (should snap 300 again today)
  7. Gold failed fast at intermediate-term TREND resistance of $1692
  8. Oil remains sticky, testing a TAIL duration breakout in both Brent and WTIC
  9. Copper, immediate-term TRADE overbought at $3.72/lb is making a series of lower long-term highs
  10. SPX overbought at 1496 and VIX oversold at 12.16 are what they are until they aren’t

Fundamental Research:

  1. Spain’s unemployment hits a higher-high at 26.02% (#PoliticalClass gets paid before The People)
  2. Japanese Exports fall another -5.8% y/y in DEC, despite setting their currency on fire!
  3. France printed a nasty Manufacturing PMI report for JAN, 42.9 (vs 44.9 in DEC)

Of course there are bullish Fundamental Research data points in this morning’s macro grind as well (imagine there wasn’t?). Chinese PMI of 51.9 in JAN was a little better than 51.5 in DEC; Germany’s Manufacturing PMI for JAN came in at 49.8 vs 46 last month, and the US economic data that’s pending (jobless claims today; New Home Sales tomorrow) continues to be bullish.

 

There’s always bulls and bears somewhere. Our daily service isn’t to be either – it’s to be objective and opportunistic when risk/reward changes (in any market or security) on the margin.

 

On the margin, was the Russell2000 making a lower-high yesterday a signal or was it noise? How about the US stock market’s breadth (advancers 46% vs decliners 50%) being negative on an up SP500 day? Why was there no volume (down 9% vs my TREND avg)? Channeling my inner-Churchill, inquiring risk management minds should never, ever, ever, give up asking questions.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, USD/YEN, UST 10yr Yield, AAPL, and the SP500 are now $1, $110.23-112.27, $3.65-3.71 $79.79-80.14 (USD bullish, Yen bearish), 80.71-90.41, 1.81-1.87%, $464-506 (Apple = immediate-term TRADE oversold in the post), and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Skinning Bears - Chart of the Day

 

Skinning Bears - Virtual Portfolio


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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