Psychological Ballet

“There’s a kind of psychological ballet: who will outstare who?”

-John Vaillant, The Tiger


Sound familiar? After a 3-day correction of 1% from the YTD high in the SP500, look into my eyes and tell me how you really feel. And “you should not suddenly turn tail because the scent of fear passes quickly.”


You must back off, slowly, slowly – especially if the tiger has a kill, or if she’s a mother with cubs: she makes a step, you make a step – you must not run away.” (The Tiger, pg 126)


To be clear, I remain bullish – and to the well known newsletter author (who sent me hate mail intraday yesterday) who wants me to roll-over and die… well, I say good luck. “Tigers will bluff-charge the same way bears do and, in most cases, all the tiger wants is an indication of submission.” (pg 150). If this market rips from here, I don’t want his apology – I just want him to publicly admit defeat.


Back to the Global Macro Grind


I know, I know – fights are breaking out and it’s getting gnarly out there. Old Wall guys sending me emails, former Perma Bulls going bearish – it’s all out there right now. It’s a Psychological Ballet. And I like it.


I also liked buying on red yesterday. We bought the SP500 (SPY) after seeing the low-end of our immediate-term Risk Range (1) tested and tried. After 3 straight down days for US stocks, the US 10yr Bond Yield is down a whole 3 basis points.


End Of World (#EOW) or correction? Who will outstare who into month and quarter-end?


Let’s drop the Siberian tiger stuff and getting into the Global Macro meat of the matter (currencies, countries, fear, etc.):


1.   CURRENCIES: the fulcrum piece of our bullish case on Asian and US #GrowthStabilizing remains the US Dollar. What Cyprus Storytelling gave us this week was an even Stronger Dollar, and Weaker Oil. The US Dollar Index is now up for 6 of the last 7 weeks and, not ironically, the CRB Commodities Index is down for 6 of the last 7 weeks.


2.   COUNTRIES: note that I wrote Asian and US #GrowthStabilizing; so, if you want to freak-out about Europe, just get over it and short Europe – but make sure you sell the right country (we prefer Italy, Russia, and France – in that order, short side). China’s Shanghai Composite ripped a +2.7% move overnight and Germany’s DAX is +0.8% testing 5-year highs. Not #EOW, yet.


3.   VOLATILITY: the epicenter of fear is in both the front-month and term structure of US Equity Volatility (VIX). I’ve written about this exhaustively for 3-months because I want to be Fading Fear (buying High Short Interest, Shorting Gold, Shorting Treasuries, etc.). Front-month VIX just failed at immediate-term TRADE resistance of 14.74 and has no support to 10.77.


I could always smell them. Now that they are sending me idle threats of hereditary right, I can see the Old Wall very clearly now. So what is it, gentlemen? To be long or short of stocks here? Buy or sell?  It really is an ok question to answer, transparently and accountably. I am watching you.


There are two categories of people when it comes to extreme situations… One gets scared first, and then starts thinking; the other starts thinking first and gets scared after the fact. Only the latter survives in the taiga.” (The Tiger, pg 155)


Having made over 2,000 long/short calls (all #timestamped, since 2008), almost 50% of the calls I have made have been on the short side. Inclusive of having to manage plenty of risk to the upside, my batting average on the short side = 79.12%. So A) unlike some of these pundits, I get things wrong and B) I have no problem shorting markets when my process tells me to do so.


Fear of fiction or perceived top-calling wisdoms only computes one way into my process – as contrarian indicators. If it’s the Italian Election or Cyprus that you fear, I am not scared. If you’ve been bearish the whole way up and it’s your reputation you fear, I don’t blame you.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX, Russell2000, and the SP500 are now $1, $107.14-109.53, $82.61-83.29, 93.68-97.17, 1.89-1.97%, 10.77-14.74, 933-955, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Psychological Ballet - Strong Dollar   Strong America


Psychological Ballet - Virtual Portfolio

Footwear: Market Share By Numbers

Takeaway: Here’s who’s gaining share, who’s losing it, and who barely has their head above water. Hint – a) Nike, b) AdiBok, c) UnderArmour

Here’s a review of who’s gaining share, who’s losing it, and who barely has their head above water. Hint – a) Nike, b) AdiBok, c) UnderArmour


Here’s an overview of market share winners and losers, based on NPD’s monthly market share data.

a)      Nike Brand market share is parabolic. Brand Jordan and Converse are both healthy, but stable.

b)      AdiBok is a train wreck – both sides of the house. It’s a good thing that the brands have better allure outside the US.

c)       UnderArmour is barely UnderWater. The general trajectory of its market share change is positive, but still unable to sustain share above 1% of the US market.

d)      Puma is in a death spiral.

e)      New Balance continues to grind higher in regaining its position as one of the top five brands. Its share now exceeds Reebok and equals Adidas.


Nike Brand Market Share

Footwear: Market Share By Numbers - nikebrandmarketshare

Source: NPD


Brand Jordan Market Share

Footwear: Market Share By Numbers - brandjordanshare

Source: NPD


Converse Market Share

Footwear: Market Share By Numbers - conversemarketshare

Source: NPD


Adidas Brand Market Share

Footwear: Market Share By Numbers - adidasmarketshare

Source: NPD


Reebok Market Share

Footwear: Market Share By Numbers - reebokmarketshare

Source: NPD


UnderArmour Market Share

Footwear: Market Share By Numbers - underarmourmarketshare

Source: NPD


New Balance Market Share

Footwear: Market Share By Numbers - newbalancemarketshare

Source: NPD


Puma Market Share

Footwear: Market Share By Numbers - pumamarketshare

Source: NPD


Sentiment isn’t actually at the bottom of the sea but the Carnival brand image may be sinking.



Carnival has had a rough March so far, in share price and public sentiment. While sentiment has turned sour, it probably hasn’t bottomed.  We think the deterioration of its brand could be the lasting issue.  With the company still licking its wounds from the Costa Concordia tragedy, a compounding number of heavily publicized brand specific issues have further tarnished the brand.  Until sentiment bottoms and/or visibility improves, we’re not sure investors should be buying the thesis that this is just a short-term blip.


Multiple ship mechanical issues and an unrelenting media attack stemming from each incident have surely damaged the Carnival brand and potentially the whole cruise industry.  The timing of less publicized stories regarding a gastroenteritis outbreak at Grand Turk (Holland America Line, Princess Cruises, and Carnival Cruises) and a robbery that left two people dead (P&O Cruises) hasn’t helped.  Other cruise liners also have incidents in 2013 (e.g. Norovirus on Royal Caribbean’s Vision of the Seas; minor fire on Norwegian’s Getaway new build) but they have remained relatively shielded from the media and public.  In addition, there have been more cancellations.  Carnival Triumph today canceled 10 more cruise itineraries, which means service will not resume until June 3.  Carnival Sunshine canceled two European cruises to allow enough time to complete its dry dock and ensure its operations are fully improved.  All is well though because travel agents and Carnival management are working nonstop to reassure its clients and interested parties that these are one-off incidents and that all ships are safe.  Tired of those words? 


Investors have punished the stock, which has fallen 12% since the Carnival Triumph fire (February 10).  As we wrote in “CHART DU JOUR: CCL: IT COULD GET SMELLIER (2/14/13),” CCL could underperform the S&P 500 over the next month if we use the Carnival Splendor fire as a comp.  Thus far, CCL has trailed the S&P by 15% since February 10.




But all is good because Carnival is low balling guidance again, right?  Not so fast.  We think whisper expectations are for a beat.  Current 2013 Street EPS is at the high end of CCL’s guidance range of $1.80-$2.10 for fiscal year 2013.  Moreover, sentiment metrics haven’t been overextended to the bearish side.  The percent of buy/overweight analyst ratings have actually crept higher since December 2012.  Meanwhile, short interest is climbing out of a recent bottom.  






Before addressing the question of whether the brand is tarnished, some fundamental concerns were already emerging.  Onboard and other yield growth, which mitigated some of the net yield decline in 2012, may be slowing.  From a net yield perspective, this is troubling as CCL’s onboard and other yield as a % contribution to net yield recently grew to its highest level ever.  This could be an indication that the resilient and robust onboard spending by North Americans may be losing its ability to offset the thrifty spending by Europeans.  RCL’s onboard spending, on the other hand, while not immune, is less exposed to this.


The macro still looks ok for the cruisers so we may be looking at just a CCL issue.  US weekend (leisure) REVPAR is not suggesting a major pullback.  We track weekend REVPAR on a weekly basis and its R2 to CCL’s onboard & other yield is 82%.  




At 13x 2014 EPS, it is trading below its 5 year average valuation.  However, if the brand is indeed tarnished, revenue and EPS estimates might be aggressive.  Sentiment still has room to fall, in our opinion, and combined with a potentially less attractive fundamental backdrop suggests a much lower stock price.

Casual Dining Trends Not Spooking Stocks

Takeaway: The latest Knapp Track data showed same-restaurant sales and traffic numbers were their worst since July and September 2009, respectively.

This note was originally published March 19, 2013 at 09:31 in Restaurants

Knapp released his casual dining same-restaurant sales estimate for February and the results confirmed the trend implied by the sequentially-worse Black Box data we saw earlier in the month.  The Knapp Track same-restaurant sales and traffic numbers were the worst since September '09 and July '09, respectively.


Knapp Sequential Moves


February estimated Knapp Track same-restaurant sales growth came in at -5.4%.  If the accounting period number is unchanged from the estimate, that will imply a sequential change in the two-year average trend of -240 bps.  This would be the most significant sequential slowdown in the two-year average trend since December 2009.  It is important to note, however, that Knapp believes that snowstorms caused a drop of 1-1.5% in same-restaurant sales in February.


February estimated Knapp Track same-restaurant traffic growth came in at -6.3%.  If the accounting period number is unchanged from the estimate, that will imply a sequential change in the two-year average trend of -250 bases points.  This would be the most significant sequential slowdown in the two-year average trend since December 2009. 



Stock Prices Couldn’t Care Less


Perhaps in anticipation of sunnier times ahead, investors seem to be buying a casual dining recovery that is yet to materialize.  We continue to like Darden and Brinker, for very different reasons, but believe that many casual dining names are up on a rope at this point.  BWLD is one name we would avoid on the long side despite some recent strength that was prompted by decreasing wing prices.


Casual Dining Trends Not Spooking Stocks - KNAPP VS CAS INDEX



Buyem: SP500 Levels, Refreshed

Takeaway: As Cyprus fear abates, I expect to see higher-highs in stocks and lower-lows in volatility.



Unless you think the end of the world call is real this time, this is right where you buyem. My signals just registered immediate-term TRADE oversold and overbought on both the SPY and VIX, respectively, at the same time.


For the last 4 months consensus bears have been looking for a crisis (Congress in late DEC, Italy in late FEB, and now Cyprus, yes Cyprus!, in late MAR). All the while, the fundamental growth outlook continues to improve – instead of down stocks, you get a Stronger Dollar, Down Oil, and Down VIX.


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


  1. Immediate-term TRADE overbought = 1566
  2. Immediate-term TRADE support = 1538
  3. Intermediate-term TREND support = 1486


In other words, as Cyprus fear abates, I expect to see higher-highs in stocks and lower-lows in volatility.




Keith R. McCullough
Chief Executive Officer


Buyem: SP500 Levels, Refreshed - SPX

Retail: A Rare Positive Data Point

Takeaway: Despite much negative commentary from many retailers (including DSW today) we got a rare positive data point on sales cadence from ICSC.

This note was originally published March 19, 2013 at 14:02 in Retail

This morning’s ICSC Retail Sales Index, a measure of nominal sales growth across 80 retail concepts by the International Council of Shopping Centers, showed the most upbeat reading all year.


We find this index useful not only in tracking the yy change in sales, but also in the sequential direction of spending by week relative to prior years.


The chart below shows that 2013 (the red line) has consistently lagged the percent gain relative to 2012 until this week, where it took a noticeable turn upwards. We can’t declare victory with only one data point, but it’s a rarity given the reports we’ve seen from retailers that have more often than not noted some form of slowdown in consumer spending year-to-date.


ICSC Retail Sales Index

Retail: A Rare Positive Data Point - icsc


Johnson Redbook Retail Sales Index, % Chg vs. Year-Ago Also Had A Good Week

Retail: A Rare Positive Data Point - redbook

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.