Buyem: SP500 Levels, Refreshed

Takeaway: I bought this SPY on my line. I also bought the US Dollar (UUP) again today. The SPY vs USD correlation = ) +0.84 right now.



We are well aware that this week’s news on the jobs front (both NSA Rolling Claims and the Monthly Jobs Report) weren’t good; at least not as good as the employment news has been. That’s now another market opportunity – what if next week’s jobless claims improve?


What if the mortgage rate for a 30yr falls back to where it was 3 months ago? What if the US Dollar continues to strengthen? What if Oil prices continue to fall? Plenty of questions to answer for tomorrow as people are forced to react to what’s now old news today.


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


  1. Immediate-term TRADE resistance = 1575
  2. Immediate-term TRADE support = 1540
  3. Intermediate-term TREND support = 1502


In other words, A) we held TRADE support (1540) this morning and B) I’m giving you a higher (all-time) high of resistance (1575). I am only giving you these because my quant model gave them to me. I do what she says.


I bought this SPY on my line. I also bought the US Dollar (UUP) again today. The SPY vs USD correlation = ) +0.84 right now. So if the US Dollar makes another higher-low here and VIX makes another lower-high, you know what to do.


Enjoy your weekend,



Keith R. McCullough
Chief Executive Officer


Buyem: SP500 Levels, Refreshed - SPX

Winds Of Change

In February, Hedgeye Financials Sector Head Josh Steiner warned that the positive data coming out of the labor market regarding employment would not last forever. Week-after-week of positive data that beat expectations was unsustainable and the seasonal-adjustments that were acting as a tailwind for the data would become a headwind by late March/early April. Sure enough, this week's ADP employment report, initial jobless claims and non-farm payroll numbers were nothing short of disappointing. 


Winds Of Change - image005


On February 28, Steiner wrote:


"The end of February marks of the peak of the seasonality distortion tailwind. Next week will mark the final tailwind datapoint. Then, beginning in March, we'll start to see the effect reverse and the market's perception around the momentum in the labor market will begin to weaken and ultimately will turn bearish as the reverse effect peaks in August."


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You can see in the charts we've included in this note that the labor market is now bearing the brunt of the seasonal-adjustment headwinds. Don't expect any meaningful recovery in the labor market, save for the occasional weekly surprise, until Labor Day weekend.


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JOBS: A Disappointing Week

This morning's non-farm payroll numbers for the month of March were the lowest in 10 months and disappointing to say the least. Only 88,000 new jobs were added for the month on a seasonally-adjusted basis, the smallest increase since June of last year as new hires fell and more people continued to drop out of the labor force. This comes on the heels of this week's ADP employment report and initial jobless claims report, both of which showed a slowdown in the labor market and came in below consensus expectations.


JOBS: A Disappointing Week - image010


Meanwhile, the unemployment fell from 7.7% to 7.6%, the lowest level since December 2007. While it may appear as a positive overall, the reality is that more people have dropped out of the labor force. The participation rate, which measures the number of working-age people who have or want a job, fell to 63.3%, the lowest level since 1979.


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Morning Reads From Our Sector Heads

Todd Jordan (GLL):


China culls poultry as bird flu death toll reaches six (via BBC)


Brian McGough (Retail):


Versace Sees Full-Year Growth — and Perhaps an IPO (via WWD)


Josh Steiner (Financials):


U.S. Regulator, Bank of America Reach Mortgage-Loss Settlement (via WSJ)


Money Spigot Opens Wider (via WSJ)


Kevin Kaiser (Energy):


Europe to Shut 10 Refineries as Profits Tumble (via Bloomberg)


Jay Van Sciver (Industrials):


Boeing Girds for 787 Battery Fix as Teams Near Biggest Fleet (via Washington Post)


Rob Campagnino (Consumer Staples):


China Bird Flu Deaths Rise to Six, Poultry Markets Shut (via Bloomberg)


Howard Penney (Restaurants):


Fast Food Workers Call For $15 An Hour Wage, Union Protections (via NY1)


Rattling Sabers

Client Talking Points

Down With The KOSPI

Korea's KOSPI index dropped the most in five months as the Bank of Japan stimulus resonates throughout the country. 41% of the KOSPI is tech/industrial that competes head to head w/ Japanese Manufacturers and as the Yen continues to be debauched, the KOSPI continues to slip lower, down another -1.6% overnight.

Bear Oil

When crude oil drops in price, that's bullish for the economy. Americans hate high gas prices and an increase in consumption is a bullish catalyst for growth. Brent Crude oil is down -4.3% year-to-date and it's starting to look a lot like gold did three months ago as the US dollar continues to roar higher. Oil can still come down further from these current prices. Get the dollar right, you'll get oil right.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Darden stands to be a beneficiary from a housing recovery and an improved employment picture, which boosts casual dining trends. The company's net income declined on its recent earnings report but beat the Street's expectations


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.


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


"@moorehn Well if recent history teaches us anything, basically no one in America gets how money works." -@KatherineMiller


"The cure for boredom is curiosity. There is no cure for curiosity." -Dorothy Parker


U.S. creates just 88,000 jobs in March; unemployment rate down to 7.6%.


Takeaway: We would fade the optimism

Tax rebates a positive for the regionals in March but revs will struggle to move into the black



Uncle Sam's late refunds may have jolted a very weak regional gaming environment – temporarily.  Sadly, same store revenues will still likely fall.  Our first peak into March involves Missouri, which we think declined only 2% on a same-store basis in March, much improved from the 9% average decline seen in the past 3 months.  


Overall, we expect SS riverboat revenues to decline 2-3% in March, much improved, but still down.  Down revenues with a favorable calendar and the tax refund catalyst is not cause for celebration, in our view.  Our projection model accounts for changes in seasonality factors, calendar differences and the tax refund. 




Before people get too pumped up about the sequential improvement in gaming revenues, we would note that SSS revenues may continue to post YoY declines until July, with July benefiting from an a easy comp from July 2012 (-7%).  With lower visitation and an older, smaller number of core gamers, we remain bearish on the regional fundamentals. 

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.