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Still Bullish: SP500 Levels, Refreshed

Takeaway: Bullish is as bullish does.

POSITIONS: 11 LONGS, 6 SHORTS @Hedgeye

 

Bullish is as bullish does. And I think we have been very clear on the why. Employment #GrowthStabilizing now has to deliver on Friday.

 

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

 

  1. Immediate-term TRADE overbought = 1511
  2. Immediate-term TRADE support = 1489
  3. Intermediate-term TREND support = 1434

 

That’s why I bought and covered on both yesterday and today’s red market opens. Our quantitative risk factoring supported those decisions.

 

It’s just our process.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Still Bullish: SP500 Levels, Refreshed - SPX


Case-Shiller: Growth On Track

This week’s Case-Shiller numbers showed +5.5% year-over-year growth for the month of November. With the housing market still in full on recovery mode, prices will likely continue to rise while existing inventory falls. Recent gains in residential home prices may induce yet higher prices, attracting new construction activity after years of a very weak market.

 

Case-Shiller: Growth On Track - case


Quick Hits on Upcoming EPS

With a slew of earnings results this week, we are about to enter the meat of consumer staples EPS results.  As a rule, we don’t do previews/reviews, but we do have an abiding interest in making people money, so we offer the following quick views on how we would be positioned into and following this week’s EPS results.  Most of these comments represent shorter duration ideas or simply an indication that we don’t see anything to do in the short-term.



BNNY – 1/30 – Wouldn’t do anything into earnings with the pizza recall muddying the waters, but any significant, incremental weakness would represent an opportunity on the long side.



CL – 1/31 – at 18.7x ’13 earnings and guidance in the rear-view mirror, hard to see how you get hurt being short here.  We are modeling an EPS result that is at consensus ($1.40), with a modest sequential deceleration in constant currency organic growth.



MJN – 1/31 – We defer to our more detailed prior work, but a quick review is that we expect a result that is below consensus, but we would be buyers lower (low $60s) assuming no new issues.



HSY – 1/31 – 21.4x ’13 EPS, but very good business momentum, we think the name finds buyers on any potential weakness post earnings.  We wouldn’t be doing anything into the print.



ENR – 1/31 – Miss on top line, better than consensus EPS, trades at 12.8x ’13 – do nothing.



MO – 1/31 – 14.4x next year, and we can abide by a short position higher, so we would take in a small short position.  We are modeling a penny below consensus for the quarter, right around consensus for 2013.



HSH – 1/31 – We are modeling $0.03 above consensus ($0.50 vs. $0.47).  We don’t love the multiple here (19.2x ’13), but this quarter shouldn’t offer a reason to sell a name that we see as a likely takeout candidate.



NWL – 2/1 – We are right at consensus of $0.42 for the quarter, but $0.06 ahead for 2013.  It’s a stealth housing play that still trades at only 12.7x ’13.  We would be long into the print, as it can be defended lower.



BEAM – 2/1 – We are $0.02 ahead of consensus for the quarter; the multiple keeps us on the sidelines on the long side and business momentum keeps us from being short.  We don't do shorts just because a name is expensive.



TSN – 2/1 – Recent upgrades (including one this morning) make us uneasy into the print and the valuation against a “normalized” EPS base that the company never seems to earn is getting full.  Watch and wait (and hopefully learn).  We are modeling an above consensus result ($0.04), but prefer to take a beer frame for the event.



Our preferred shorts remain TAP, KMB, PM and either GIS or CPB in packaged food. We are sticking with our preferred longs:

  1. STZ - event stock with near-term catalyst
  2. CAG - valuation remains compelling
  3. PG - positive bias to EPS estimates (versus KMB short)
  4. ADM - most compelling way to play new crop year (though no clear view on upcoming EPS)

Call with questions.

 

 - Rob

 

Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

E:

P:


Matt Hedrick

Senior Analyst

 




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Retail: Waiting For A Fundamental Rebound

Takeaway: Retail spending stats are not getting better as the month draws to a close. Better consumer confidence is having zero impact -- yet.

We might be in a bull market, and that might create a wealth-effect as it relates to consumer spending, but we’re simply not seeing it yet. The Redbook (80 store sample) numbers released this morning peg department store spending flat yy, and the gap with Discount Stores continues to widen. This is the 5th week we’ve seen consecutive declines in the Dept Store component, and 4th week for Discounters. The Discount Store/Department Store gap traditionally widens when the consumer is stretched as people take down discretionary spending, and shift incrementally to the Wal-Marts of the world. The incremental changes are not massive, but have been enough to take Department Store spend from +1.7% around the holiday (partially driven by discounting) to flat today. 

 

Our top long ideas are RH, NKE, FNP (still), JCP and RL.

Top shorts include M, GPS, GES, UA and KSS 

 

Johnson Redbook Same Store Sales Index: YY % Change

Retail: Waiting For A Fundamental Rebound - redbook1


Front Running

Client Talking Points

Higher Yields

You’ve got to keep in mind that #GrowthStabilizing = good for stocks, bad for bonds and gold. In turn, yields on the 10-year Treasury hit higher highs this morning, with 2.01% acting as immediate-term TRADE resistance. There’s no intermediate-term resistance up to 2.41% and with employment, housing and labor markets cranking out positive data points week-after-week, higher yields are certainly possible. Fund flows are moving out of bonds and Treasuries and into equities as they chase they stock market.

Beat The Machines

A lot of investors and traders like to complain about “the machines” (aka the algos, the robots) taking control of the market and beating people at their own game. Well if you can’t join ‘em, beat ‘em. If you stick to a plan that works, you can front run the algos and stay one step ahead in this game called “the market.” We use our multi-duration (TRADE, TREND, TAIL), price/volume/volatility model to tell us what the machines are chasing and that way, we don’t have to worry about what some bank’s buy algo is doing because we’ve done the math and the homework. Right now, it’s sexy to be in names that have high short interest, high beta and high debt/EV. The market may seem toppy but there’s room to grow; just keep in mind that our S&P 500 line of TRADE support is at 1488. That’s the magic number.

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

“bulls looking for another leg higher in equities. Bears praying for a rollover. FOMC tomorrow - perfect” -@allstarcharts

QUOTE OF THE DAY

“Eccentricity is not, as dull people would have us believe, a form of madness. It is often a kind of innocent pride, and the man of genius and the aristocrat are frequently regarded as eccentrics because genius and aristocrat are entirely unafraid of and uninfluenced by the opinions and vagaries of the crowd.” -Edith Sitwell

STAT OF THE DAY

Case-Shiller 20-city home-price index up 5.5% year-over-year


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 29, 2013


As we look at today's setup for the S&P 500, the range is 22 points or 0.81% downside to 1488 and 0.65% upside to 1510.                              

                                                                                                              

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: 1.68 from 1.69
  • VIX  closed at 13.57 1 day percent change of 5.28%
  • 10YR – higher-highs for Treasury yields again this week despite stocks having their 1st down day in 8 and the futures a tad lower this morning; 2.01% is immediate-term TRADE resistance; no intermediate-term resistance to 2.41%; employment and housing continue to support higher bond yields and fund flows out of Treasuries into stock market chasing.

MACRO DATA POINTS (Bloomberg Estimates):

  • FOMC opens two-day meeting
  • 7:45am: ICSC weekly sales
  • 8:55am: Johnson/Redbook weekly sales
  • 9am: S&P/CS 20 City M/m, Nov. est. 0.7% (prior 0.66%)
  • 9am:S&P/CS Composite-20 Y/y, Nov., est. 5.5% (prior 4.31%)
  • 10am: Consumer Confidence, Jan., est. 64.0 (prior 65.1)
  • 11am: Fed to purchase $2.75b-$3.5b notes in 2020-2022 sector
  • 11:30am: U.S. Treasury to sell 4W bills
  • 1pm: U.S. Treasury to sell $35b 5Y notes
  • 4:30pm: API energy inventories

GOVERNMENT:

    • President Obama to speak on immigration in Nev.
    • Senate in session, House returns Feb. 4
    • Senate expected to vote on nomination of Sen. John Kerry, D-Mass, to succeed Hillary Clinton as Secretary of State

WHAT TO WATCH

  • Bernanke seen buying $1.14t in assets by early 2014
  • Goldman raises ~$1b from stake in China’s ICBC
  • Yahoo sees 1Q revenue below estimates as 4Q adj. EPS beats
  • VMWare sales forecast misses estimates; job cuts planned
  • AMR ad hoc bondholder group said to favor merger with US Airways
  • BS told by U.S. judge to give IRS data on Wegelin accounts
  • U.S. seeks criminal charges in RBS Libor settlement, WSJ says
  • Bausch & Lomb’s PE owners may favor IPO after buyers balk: WSJ
  • Japan’s govt. proposes 1st spending cut in 7 yrs
  • India cuts interest rates to revive growth as inflation cools
  • United States Bakery to buy Hostess bread brands for $29m

EARNINGS:

    • Tyco International (TYC) 6am, $0.39
    • Danaher (DHR) 6am, $0.86
    • Ashland (ASH) 6am, $1.36
    • Polaris Industries (PII) 6am, $1.23
    • Eli Lilly & Co (LLY) 6:30am, $0.79 - Preview
    • Harris (HRS) 6:30am, $1.19
    • CIT Group (CIT) 6:30am, $0.61
    • EMC (EMC) 6:45am, $0.52
    • Potlatch (PCH) 6:45am, $0.32
    • International Paper (IP) 6:58am, $0.65
    • Waddell & Reed (WDR) 6:59am, $0.58
    • IDEXX (IDXX) 7am, $0.71
    • Corning (GLW) 7am, $0.33
    • Pentair (PNR) 7am, $0.44
    • Pfizer (PFE) 7am, $0.44 - Preview
    • Tupperware Brands (TUP) 7am, $1.68
    • DR Horton (DHI) 7am, $0.14 - Preview
    • Harley-Davidson (HOG) 7am, $0.31
    • Metro (MRU CN) 7am, C$1.11
    • Ford Motor Co (F) 7am, $0.26 - Preview
    • Boston Scientific (BSX) 7am, $0.11 - Preview
    • Lexmark International (LXK) 7am, $0.90
    • Alliance Resource Partners (ARLP) 7am, $1.34
    • Alliance Holdings GP (AHGP) 7am, $0.79
    • United States Steel (X) 7:30am, $(0.76) - Preview
    • Canadian Pacific Railway (CP CN) 7:30am, $1.28
    • Monro Muffler (MNRO) 7:30am, $0.36
    • JetBlue Airways (JBLU) 7:30am, $0.02
    • T Rowe Price Group (TROW) 7:30am, $0.89
    • Anixter International (AXE) 7:30am, $1.32
    • BankUnited (BKU) 7:30am, $0.49
    • NextEra Energy (NEE) 7:32am, $0.95
    • Valero Energy (VLO) 7:40am, $1.20
    • United Bankshares (UBSI) 7:50am, $0.44
    • Affiliated Managers Group (AMG) 7:55am, $2.43
    • Illinois Tool Works (ITW) 8am, $0.91
    • Peabody Energy (BTU) 8am, $0.26
    • Gentex (GNTX) 8am, $0.26
    • Capitol Federal Financial (CFFN) 8:30am, $0.12
    • Nucor (NUE) 9am, $0.30 - Preview
    • Amazon.com (AMZN) 4pm, $0.27
    • Plantronics (PLT) 4pm, $0.68
    • Freescale Semiconductor (FSL) 4pm, $(0.17)
    • Vertex Pharmaceuticals (VRTX) 4pm, $(0.08)
    • Hub Group (HUBG) 4pm, $0.50
    • Manhattan Associates (MANH) 4pm, $0.67
    • Ace (ACE) 4:01pm, $1.28
    • Aspen Technology (AZPN) 4:01pm, $0.05
    • Wesco Aircraft Holdings (WAIR) 4:01pm, $0.28
    • Robert Half International (RHI) 4:02pm, $0.41
    • Parexel International (PRXL) 4:02pm, $0.33
    • Dolby Laboratories (DLB) 4:05pm, $0.56
    • Broadcom (BRCM) 4:05pm, $0.74
    • StanCorp Financial Group (SFG) 4:05pm, $0.84
    • Arthur J Gallagher & Co (AJG) 4:09pm, $0.38
    • Jones Lang LaSalle (JLL) 4:15pm, $2.62
    • Ryland Group (RYL) 4:15pm, $0.50
    • CapitalSource (CSE) 4:15pm, $0.13
    • Virtus Investment (VRTS) 4:15pm, $1.52
    • Unisys (UIS) 4:30pm, $1.49
    • PolyOne (POL) 4:35pm, $0.21
    • Silgan Holdings (SLGN) 4:50pm, $0.47
    • Boston Properties (BXP) Post-Mkt, $1.24
    • MB Financial (MBFI) Post-Mkt, $0.43
    • Buckeye Technologies (BKI) Post-Mkt, $0.68

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


OIL – biggest headwind to our call on Global Growth remains higher oil prices; with Brent back in a Bullish Formation (long-term TAIL support = $111.48), it’s ok to start shorting favorite consumer ideas (we shorted Macy’s (M) in the US yesterday and still like DRI and KSS short).

  • Gold Assets Head for Worst Monthly Drop Since ‘11 on Rebound             
  • Tin Beating All Metals on Fourth Year of Shortages: Commodities
  • Brent Trades Near Three-Month High on Global Economic Confidence
  • Gold Climbs From Two-Week Low in London on U.S. Stimulus Outlook
  • Canadian Wheat Harvest Seen Gaining as Global Supply Rebounds
  • Copper Trades Little Changed at $8,053 a Metric Ton in London
  • Cocoa Advances on Speculation of Industry Buying; Sugar Retreats
  • Cotton Crop Shrinking Signals Rebound in Price: Chart of the Day
  • Rubber Declines as U.S. Home Sales, Chinese Purchases Decrease
  • Oil Supplies Rise in Survey as Production Climbs: Energy Markets
  • Rebar Ends Near Six-Month High on Chinese Growth Recovery Bets
  • Tanker Glut Worsening as OPEC Cuts Most Since Recession: Freight
  • Anglo Writes Down $4 Billion on Minas-Rio as Spending Climbs
  • Corn Rises for Second Day as Dryness May Reduce Argentine Crop

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


ASIA – mixed bag of signals overnight as China powers to another immediate-term TRADE overbought signal, +0.5% at 2338 on the Shanghai Comp; India down -0.6% on what we thought was a dumb rate cut (1st Asian major to cut in 2013, which is a lot different than last yrs 10,000 global easings).

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%
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