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Still Bullish: SP500 Levels, Refreshed

Takeaway: We anticipate that downside will be reasonably contained as the market pulls back from immediate-term TRADE overbought.

The Bloomberg quote of the day form this AM read:

 

“I’ve failed over and over again in my life and that is why I succeed”

-Michael Jordan

 

While not at all comparing ourselves to MJ, his six titles and his decade-plus of unparalleled dominance in the modern era of basketball, we do share a similar experience in that our failures also tend to sow the seeds for eventual success(es).

 

Long-term clients of our Macro research product know that we haven’t traditionally been the bulls’ huckleberry at the top-end of market melt-ups in previous years as various Polices to Inflate have appropriately led us to discounting eventual slowdowns in economic and/or earnings growth. This time, however, we too are cheering on those gains with the backdrop of not much incremental in the way of such policies.

 

As we outlined in our note from Friday titled, “1565?: SP500 Levels, Refreshed”, we think the balance of risks underpinning the US equity market from both a fundamental research and quantitative risk management perspective remains demonstrably in favor of further upside.

 

More importantly, we think there are a number of investors who may not have fully participated in the melt-up; they and “the flows” will likely be buying the dips at/around our immediate-term TRADE and, if necessary, our intermediate-term TREND lines of support:

 

  • Immediate-term TRADE Overbought = 1509
  • Immediate-term TRADE support = 1486
  • Intermediate-term TREND support = 1434

 

If you’re still bearish on this market or do not necessarily believe it has further upside, that’s totally fine; to each his/her own. We just don’t think it's prudent to short this puppy at least until you see a quantitative breakdown through the aforementioned level(s) of support that is also confirmed by a deterioration in the fundamental backdrop.

 

Right now, however, that scenario is about as probable as sustained flows into fixed income funds throughout 2013 (i.e. “not very”).

 

Darius Dale

Senior Analyst

 

Still Bullish: SP500 Levels, Refreshed - SPX


MACAU: Smoke On The Water

The partial smoking ban that went into place this month has yet to have a material impact on Macau casinos. Average Daily Table Revenue (ADTR) was HK$775 million this past week, in-line with the prior week and well below the first two weeks of the month. The pre-Chinese New Year timing is also a factor in the decline in ADTR. 

 

We expected the smoking ban to play a significant role in revenue but it has yet to do so. Since January 1st, 9000 people have been fined for smoking in public areas. The partial smoking ban allows casinos to have smoking areas in up to 50% of the gaming floor area. The rules do not set up a minimum ratio for the number of slots and tables to be included in smoking and non-smoking area. 

 

MACAU: Smoke On The Water - macau1


MACAU: NEW WEEK - SIMILAR PACE

Daily table revenues averaged HK$775 million this past week, in-line with the prior week and well below the first two weeks of the month.  The pre-Chinese New Year timing is clearly a factor.  Our full month projection remains at +7-11%, probably a bit lower than consensus.  So far, it doesn’t look like the smoking ban has had much impact, much to our surprise.

 

MACAU: NEW WEEK - SIMILAR PACE - macau1

 

MPEL continues to have a strong month in terms of market share while LVS and MGM remain below recent trend.  

 

MACAU: NEW WEEK - SIMILAR PACE - a2


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XLP: Treasuries Weigh In

Over the last few weeks, the spread on the 10-year Treasury and the yield of the Consumer Staples Select Sector SPDR ETF (XLP) has decreased by 0.44% (from -1.39% to -0.95%). This represents a combination of price performance of the XLP combined with the fact that yields have crept higher. Why does this matter? We’ve noticed that the XLP has become increasingly sensitive to changes in yields on government securities in recent years.

 

XLP: Treasuries Weigh In - Yield spread


Pop That Stock

Client Talking Points

Ruffling Feathers

Japan is ruffling the feathers of China and Korea as it devalues the Yen in order to keep that “2% inflation target” in check. If it doesn’t end well, Japan won’t have China there to bail them out like Europe did. Caveat Emptor. What’s interesting is that while US equities are busy ripping higher week after week, South Korea, Brazil and China saw their stocks drop last week:

 

1.       South Korea = KOSPI -2.1% (breaking TRADE and TREND support)

2.       Brazil = Bovespa -1.3% (holding TRADE and TREND support)

3.       China = Shanghai Composite -1.1% (holding TRADE and TREND support)

 

When the TRADE and TREND support snaps, we wait and watch rather than buy the dip. When support holds, we’ll buy ‘em. Anyone who bought China on Friday is enjoying the upside surprise this morning to the tune of +2.4% on the Shanghai Comp. Korea’s KOSPI is doing the opposite and is heading lower after last week. It goes to show you that markets work until they don’t.

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

“US Durable Goods Orders rip the bears a new one, +4.6% vs +2% ‘expected’” -@KeithMcCullough

 

QUOTE OF THE DAY

“Most people are other people. Their thoughts are someone else's opinions, their lives a mimicry, their passions a quotation.” -Oscar Wilde

STAT OF THE DAY

TREASURY 10-YEAR NOTE YIELD RISES TO 2% FIRST TIME SINCE APRIL


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 28, 2013


As we look at today's setup for the S&P 500, the range is 23 points or 1.19% downside to 1485 and 0.34% upside to 1508.       

                                                                                                                        

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 - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.69 from 1.68
  • VIX  closed at 12.89 1 day percent change of 1.58%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Durable Goods Orders, Dec., est. 1.9% (prior 0.8%)
  • 8:30am: Durables Ex Trans., Dec., est. 0.9% (prior 1.6%)
  • 10am: Pending Home Sales M/m, Dec., est. 0.4% (prior 1.7%)
  • 10:30am: Dallas Fed Manf. Activity, Jan. (prior 6.8)
  • 11am: Fed to purchase $1.25b-$1.75b notes in 2036-2042 sector
  • 11:30am: U.S. Treasury to sell $32b 3M bills, $28b 6M bills
  • 1pm: U.S. Treasury to sell $35b 2Y notes

GOVERNMENT:

    • Deadline for FERC staff to respond to Barclays over $470m penalty for alleged manipulation of energy market
    • U.S. Comptroller of the Currency Thomas Curry delivers keynote address at American Securitization Forum
    • U.S., EU, Japan to request WTO judges investigate Argentina’s import restrictions; Argentina to ask WTO to set up panel to probe U.S. curbs on imports of its animals, animal products
    • Ryan says U.S. budget needs spending cuts, not increased revenue

WHAT TO WATCH

  • Goods orders probably climbed as U.S. manufacturing stabilized
  • Boeing risks revenue of $5b on Dreamliner probe’s outcome
  • Japan’s Amari says mkts set currencies amid yen criticism
  • LodgeNet files for bankruptcy on Colony, DirecTV partner plans
  • J&J failed to forecast flaws leading to hip recall, jury told
  • China needs stricter rules on generic biologic drugs, group says
  • Barnes & Noble to cut 33% of stores over next decade: WSJ
  • Volvo to buy 45% of Dongfeng Motor Groups unit for RMB5.6b
  • U.S. air safety group urged tougher battery standards, WSJ says
  • ‘Hansel & Gretel’ top weekend N.A. film with $19m ticket sales
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • Canada Weekly Agendas: Energy, Mining
  • Fed Meeting, U.S. Jobs, Boeing: Wk Ahead Jan. 28-Feb. 2

 EARNINGS:

    • Roper Industries (ROP) 7am, $1.46
    • Biogen Idec (BIIB) 7am, $1.46 - Preview
    • Rent-A-Center (RCII) 7am, $0.84
    • Caterpillar (CAT) 7:30am, $1.70 - Preview
    • Old National Bancorp (ONB) 9am, $0.23
    • International Rectifier (IRF) 4pm, $(0.51)
    • Integrated Device Technology (IDTI) 4pm, $0.04
    • J&J Snack Foods (JJSF) 4pm, $0.44
    • VMware (VMW) 4:01pm, $0.78
    • Seagate Technology (STX) 4:01pm, $1.29
    • Plum Creek Timber Co (PCL) 4:02pm, $0.29
    • Yahoo! (YHOO) 4:05pm, $0.28
    • Illumina (ILMN) 4:05pm, $0.41
    • Sanmini-SCI (SANM) 4:05pm, $0.34
    • BMC Software (BMC) 4:05pm, $1.02
    • Zions (ZION) 4:10pm, $0.41
    • Graco (GGG) 4:30pm, $0.60
    • Brookfield Canada Office (BOX-U CN) 5pm, C$0.37
    • NewMarket (NEU) 5:01pm, $4.11
    • Crane Co (CR) 5:15pm, $0.96
    • Celanese (CE) 5:25pm, $0.63
    • Steel Dynamics (STLD) 6pm, $0.14
    • Olin (OLN) Late PM, $0.35

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Russia, Kazakhstan Expand Gold Reserves as Central Banks Buy
  • Hedge Funds Boost Bullish Bets by Most Since July: Commodities
  • Oil Trades Near Highest Level in Four Months on Economic Outlook
  • Copper Advances as Chinese Earnings Add to Revival Indications
  • Gold Trades Near Two-Week Low Amid Signs Economy Is Improving
  • Wheat Climbs Second Day After Tenders From Bangladesh and Jordan
  • Sugar Climbs as Bets on Lower Prices Reach Record; Coffee Falls
  • ICE to Start Iron Ore Futures as Market Grows on China Bets
  • Oil Bulls Ride Longest-Winning Streak Since 2006: Energy Markets
  • Indonesia Increasing Palm Oil Export Tax Seen Curbing Shipments
  • German Green Energy Push Bites Mittelstand Hand That Feeds GDP
  • Xstrata CEO Says Markets Not Best Route to Fund New Business: FT
  • Zinc Seen Climbing in Rebound From Average: Technical Analysis
  • Fonterra CEO Seeks to Reassure China, World on Milk Safety
  • India Imported 33% More Gold in January to Beat Tax, Group Says

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

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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