Waiting To Buy

Client Talking Points

Red Light, Green Market

Using the VIX as a way to gauge the market works well...if you understand how to utilize it correctly. Right now, we're waiting for two things to happen before we start going into the market on volatility signals:


1) We need the S&P 500 to be oversold


2) We need the VIX to be overbought


Both of these things need to occur on an immediate-term TRADE basis. When these signals hit, we'll be comfortable buying the SPX. But until then, we have to wait. If we revisit last Friday you'll find that:


1) On Friday morning, the SP500 was immediate-term TRADE oversold at 1540

2) On Friday morning, the VIX was immediate-term TRADE overbought at 15.23


You can't just go around randomly jumping in and out of the market without a process; you might as well hit the craps table if that's what you want to do. 

The Effects of Japan

The Bank of Japan's stimulus announcement from last week has done all sorts of crazy things to the global markets. We suppose that people get riled up over news of a $1.4 trillion stimulus that's unprecedented. Despite the Japanese government saying (and to paraphrase Kyle Bass from his interview on Bloomberg yesterday) "We've got your back!", investors ran away from JGBs. Meanwhile, the Nikkei 225 looked like it spent too much time at the gym and has tacked on a +7.1% gain over the last five trading days. As for the US, we rallied and then went back to business as usual: trying to reach new highs in the S&P 500

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


"It is possible to trade this rally w/o that hate/love thing. Just mind noise. Also very nearly possible to trade it w/o CNBC." -@Daytrend


"All movements go too far." -Bertrand Russell


China posts surprising trade deficit of $880 million for March as imports surge by +14.1% year-over-year.

I'm Thinking

This note was originally published at 8am on March 27, 2013 for Hedgeye subscribers.

“I’m thinking, Mom, I’m thinking.”

-Bill Gates


That’s how Joey Reiman starts Chapter 2 of Thinking For A Living – “The Golden Age of Ideas and Nine Thinkers Who Figured Out How To Make It Work For Them.” It’s a quick read and I’m enjoying it. Studying success inspires me more than Cyprus does.


Thinking for yourself isn’t easy. Maybe that’s why I find being on the road therapeutic. Since I’m not the brightest bulb on the tree to begin with, I’ll take every competitive advantage I can get. One of the big ones is having broad diversity in our client base.  Thinking for a living about markets wouldn’t be complete without feedback loops. Thoughtful clients provide those. So does Twitter.


I was in Philadelphia for the day yesterday and had a dinner in Delaware last night. I’ll be in Baltimore today. Every client has a different style. They have different questions too. Selfishly, sometimes the best answer I can give in a meeting is ‘I don’t know.’ It means I haven’t thought about that enough; it means I need to be more thoughtful; and it means there is work to be done.


Back to the Global Macro Grind


Got US #GrowthStabilizing and #HousingsHammer in the bag as your Big Macro Theme thoughts for Q113?

  1. US Durable Goods ramped +5.7% in February to a new intermediate-term TREND cycle high
  2. Case-Shiller’s US Home Price Index ramped to a new high of +8.1% vs 6.9% last month
  3. In response, the SP500 closed at its 2013 high of 1563 yesterday, two points off its all-time high

What about the Italian Election? What about Cyprus? What about the coffee you spilled on your white shirt?


There’s always something to be worried about in this good life. When it comes to your performance, the question is are you worried about the things that actually matter? And, if you are, have you expressed those concerns correctly in terms of your portfolio’s positioning? If you are bearish on Spain and Italy, why sell US Equities? Why don’t you just sell Spain or Italy?


To be sure, at the end of the world all of this will come home to roost. And the timing on that is something I think about a lot. It’s called mortality. But, in between now and then, I still need to grind through our interconnected Global Macro Risk Management Signals and see what we might want to be thinking about this morning:



  1. US Dollar: up for the 7th week in the last 8, #StrongDollar continues to be a pro-growth signal (for the USA) in our model
  2. US Stocks (SP500): making higher-lows and higher-highs, they remain in a Bullish Formation with a risk range of 1554-1568
  3. US Equity Volatility (VIX): making lower-highs and lower-lows, fear remains in a Bearish Formation (risk range 10.82-14.42)


  1. Chinese Stocks (Shanghai Comp): bullish TREND support of 2206 holds as economic data sets up to accelerate in March
  2. South Korean Stocks (KOSPI): trading back above its TRADE and TREND (1975) lines of support this morning
  3. Broad Based Rally: overnight, Philippines +2.7%, Indonesia +1.8%, Thailand +1.4%


  1. The Euro (vs USD): continues to break-down (lower-highs and lower-lows) with a bearish risk range now of $1.27-1.29
  2. German Stocks (DAX): testing immediate-term TRADE support of 7861 this morning; bullish TREND remains intact
  3. Spanish and Italians Stocks: both the IBEX (Spain) and MIB Index (Italy) are bearish on our TRADE and TREND durations

BREAKING NEWS: Italy is not the Philippines. Seriously.


Who cares about 92 million people and a stock market that’s up +15% YTD (Philippines) when we can freak ourselves out about 1 million people in Cyprus whose stock market is down 98% since 2007?


Who cares about the Philippines getting its sovereign debt upgraded to investment-grade for the first time ever (Fitch this morning – ever is a long time), when we can still try to sell crisis coverage advertising when Italy’s debt gets downgraded?


I am obviously not thinking about the #EOW (end of the world) thesis correctly. But neither are the Asian and US equity market bears. Henry Ford said, “thinking is the hardest work there is, which is probably why so few engage in it.” Indeed.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000, and the SP500 are now $1586-1605, $106.74-110.29, $82.65-83.38, 94.02-96.71, 1.88-1.96%, 10.82-14.42, 941-955, and 1554-1568, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


I'm Thinking - Chart of the Day


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Stuff Changes

“We are made of the same stuff of which events are made.”

-Ralph Waldo Emerson


That’s the opening volley from astrophysicist Eric Chaisson in one of my favorite risk management books, Cosmic Evolution. What’s up with that? What’s up with a chaos theorist prefacing his ideas with the penmanship of a mid-19th century American essayist? It’s all about the storytelling folks. As Taleb recently wrote in Antifragile, “evolution does not depend on narratives, humans do.”


While finding the deep simplicity of the Global Macro point that matters can often feel like finding Waldo himself, Chaisson channeling Emerson is consistent with our discipline of Embracing Uncertainty. Emerson was labeled as a “transcendalist” – he preached individualism and self reliance; he did not support dogmatic and/or traditional organizations.


We’re human, so we want things about markets to make simple sense within our organizational boxes. But markets change, fast and slow. Sometimes they make sense. Sometimes they don’t.  In the heat of a thermodynamic moment, does every phase change make sense to everyone? Does that change care if you understand it? Of course not. Best we can do is try to keep up.


Back to the Global Macro Grind


Keeping up with the US stock market hasn’t been easy for the #PTCs (professional top callers). Every time the SP500 sells off to a higher-low (1540 on Friday), they claim victory. Every time we rally off those higher-lows to higher all-time highs, I hear crickets.


Crickets? What are crickets? Do you hear them on the floor of the NYSE? Crickets – you can hear the hum when something was supposed to happen, and didn’t. #crickets


While I am not entirely sure what kind of a risk management process top-calling is, it fits within the confirmation biases of consensus. My tally is up to 28 high profile PMs, strategists, pundits, etc. who are currently still trying to call the top in US stocks. Maybe this time is different – maybe they’ll all nail it, at the same time. Maybe not.


Quantifying sentiment in markets is probably the hardest thing to do – I’ve tested and trialed almost every voodoo signal I have been issued on this front, and I am left with very few that I’d actually act on. Let’s consider those few:


1.   Sentiment Spread – the II Bullish/Bearish survey data doesn’t tell me much on most metrics other than its historical spread (ie Bulls minus Bears). This morning, that spread is +2990 basis points wide. Over a decade of my tabulating/monitoring this spread, a relatively safe sell zone is +3 basis points wide. A relatively safe buy zone is basis points wide.


2.   Exhaustion (VIX vs SPX) – while plenty will quibble with this for theoretical reasons (“front month doesn’t reflect sentiment” … “term structure matters more”, etc. etc.), for me it’s just a signal that I’ve built for myself that works most of the time. The problem with it is that it’s not signaling all of the time. So I have to wait on it.


If you’ve studied thermodynamics, you’ll agree that waiting for a certain amount of entropy matters before you register a certain amount of consequential change (energy). That’s one way to conceptualize my VIX/SPX signal. What I am waiting on is:


A)     SPX immediate-term TRADE oversold

B)      VIX immediate-term TRADE overbought


Sounds simple, because it is – after you’ve incorporated multiple-factors across multiple-durations in order to contextualize that immediate-term moment. In other words, it’s a lot easier to roll with the conclusion after the process signals it.


I’m not submitting that I haven’t been run over by my signals once in a while. Nor am I suggesting that either the Sentiment Spread or the VIX/SPX signal are stand alone silver bullet signals. They are just two of the many tells I use instead of gnomes.


Just to roll through putting the aforementioned into action:

  1. On Friday morning, the SP500 was immediate-term TRADE oversold at 1540
  2. On Friday morning, the VIX was immediate-term TRADE overbought at 15.23

So, our #RealTimeAlerts (immediate-term signaling product) acted, aggressively on that, covering shorts and buying stocks (including the SPY itself). This is not about taking victory laps – this is about being accountable to what I do and why. I feel like putting my process out there like this makes it better. Sharp clients question it; so do my analysts internally. In the end, for me at least, that’s a win.


The other side of the buy/cover signal is to have the discipline to sell/short on the bounce. We’ve seen that for a few days since the Friday lows, and now, as the SP500 makes another all-time high, we’ll get another SPX overbought/VIX oversold signal too.


Will that happen at VIX 12.21 and SPX 1576? I don’t know. And that’s the point. Embracing Uncertainty in a non-linear and dynamic ecosystem like this is what I do. Stuff Changes. So I need to change alongside it.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $103.86-107.78, $3.29-3.47, $82.23-83.34, 96.12-100.05, 1.71-1.82%, 12.21-14.51, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Stuff Changes - Chart of the Day


Stuff Changes - Virtual Portfolio


The Macau Metro Monitor, April 10, 2013




In a Nevada state court filing, U.S. federal prosecutors sought permission to intervene in a lawsuit brought by WYNN against Okada to prevent disrupting an ongoing criminal probe into the bribery allegations.  It was the first time U.S. authorities publicly acknowledged a criminal investigation of Okada and his companies - Japan's Universal Entertainment Corp and Aruze USA Inc - for possible violations of the Foreign Corrupt Practices Act, an anti-bribery statute dating to the 1970s.


The U.S. Department of Justice is seeking a temporary stay on discovery in the civil proceedings to allow for the criminal case to be developed.  Wynn would consent to the motion while Okada would likely oppose it, according to the filing.


The government also noted in the filing that it has been conducting a criminal investigation into Wynn's donation in 2011 to the University of Macau Development Foundation.  Okada has said Wynn's board turned against him for opposing the donation.



An examination of court documents by Reuters and a series of interviews with lawyers and industry executives reveal that several of the gamblers have run up millions of dollars in debt and then scampered back to China, where they are effectively untouchable.


When faced with bad debts, casinos negotiate with the gamblers, and as a last resort, file suits in court. But as gambling debt is considered a civil, not criminal, issue in Singapore, gamblers who fail to pay will not be arrested.


The two casinos have sued at least three Chinese gamblers to recover millions of dollars but court documents show they have not been able to get any money from them so far.  Court documents also show that Marina Bay Sands has filed 84 claims for at least S$250,000 each at Singapore's top court since 2010, including 62 last year and 11 as of mid-March this year.  Resorts World filed 11 cases in 2012 and one in 2010. These cases relate to all manner of claims, not just gambling debts.


Many of the suits filed in the Singapore court are against gamblers based in the country, but there are likely to be larger claims on Chinese high-rollers that are not pursued due to the "painful" process and the potential bad publicity, lawyers said.


Singapore does not have reciprocal enforcement of judgments with China, except for Hong Kong. This means that even if a casino obtains a judgment in a Singapore court, it also has to sue the gambler in China.


"If there is a lot of gambling debt and the gambler is in China now, usually the casinos can hardly get any cooperation from the Chinese government to go after them because gambling is illegal in China," said Huang Jing, director at the Center on Asia and Globalization at the Lee Kuan Yew School of Public Policy in Singapore, who advises China's policymakers.


TODAY’S S&P 500 SET-UP – April 10, 2013

As we look at today's setup for the S&P 500, the range is 15 points or 0.49% downside to 1561 and 0.47% upside to 1576.         










  • YIELD CURVE: 1.54 from 1.52
  • VIX closed at 12.84 1 day percent change of -2.65%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, April 5 (prior -4.0%)
  • 7:30am: Fed’s Lockhart speaks at Atlanta Fed conference
  • 8:45am: Bloomberg U.S. Economic Survey, April
  • 10:30am: DOE Energy Inventories
  • 1pm: U.S. to sell $21b 10Y notes in reopening
  • 2pm: Monthly Budget Statement, March
  • 2pm: Fed releases minutes from March 19-20 FOMC Meeting
  • 5pm: Fed’s Fisher speaks on economy in El Paso, Texas


    • 9:30am: Senate Homeland Security Cmte hears from U.S. Border Patrol Chief Michael Fisher, acting Customs chief Kevin McAleenan
    • 10am: House Ways and Means hearing on govt’s ability to keep operating if Treasury reaches statutory debt limit
    • 10am: House Energy and Commerce panel hearing on Keystone bill intended to bypass the need for a presidential permit for the pipeline’s construction; TransCanada’s Alexander Pourbaix, NRDC’s Anthony Swift among witnesses 


  • President Obama sends budget plan to Congress
  • Universal Entertainment’s Okada under U.S. criminal probe
  • Swap users win staggered delays in Dodd-Frank reporting rules
  • Apple said to discuss closer mobile collaboration with Yahoo
  • Citigroup hires McKinsey’s Chubak to help Corbat pare expenses
  • Home prices to decline in some cities as rates rise: Zillow
  • Exxon to seek second MTBE win in New Hampshire appeal
  • Microsoft says Surface tablet 2-yr warranty follows China law
  • Deutsche Telekom tallies MetroPCS votes to weigh higher bid
  • UnitedHealth units to pay $500m over hepatitis doctor
  • China exports miss forecasts as “absurd” data defended
  • Toyota says Corolla surpassed Ford Focus in 2012 global sales
  • Yahoo CEO Mayer puts Reses in charge of talent management, M&A
  • UBS plans to expand Asia corporate advisory headcount by 10%
  • Navistar accused in suit of misleading on engine compliance
  • APA expects offers for Australian gas pipeline in next week


    • Family Dollar Stores (FDO) 7am, $1.22
    • Fastental (FAST) 7am, $0.37
    • MSC Industrial (MSM) 7:30am, $0.90
    • Constellation Brands (STZ) 7:30am, $0.45 - Preview
    • CarMax (KMX) 7:35am, $0.46
    • Progressive (PGR) 8:12am, $0.44
    • Bed Bath & Beyond (BBBY) 4:15pm, $1.68 - Preview
    • Novagold Resources (NG CN) Aft-mkt, C$(0.03)


  • WTI Halts Two-Day Advance as Supplies Rise to Three-Decade High
  • Mine Town Rents Beating Manhattan Show Aussie Pain: Commodities
  • Copper Drops as China Exports Fuel Concern Supply to Top Demand
  • Gold Declines From One-Week High on Economic Recovery Outlook
  • Wheat Drops as USDA Report May Show Higher Reserves; Corn Climbs
  • Robusta Coffee at One-Week Low as Investors Sell; Cocoa Retreats
  • Goldman Lowers Gold Price Forecast Through 2014 as Cycle Turns
  • India Said to Consider Increasing Oilseed Prices to Boost Output
  • China’s Crude Imports Fall to Lowest in Six Months in March
  • Rebar Trades Near Two-Week High on Gain in Seasonal Demand
  • Asian LNG Set to Rise as Premium at Two-Year Low: Energy Markets
  • Gold in Yen Surges as Stimulus Erodes Currency: Chart of the Day
  • Mechel Said to Consider Revising Plan to Sell Eastern Coal Asset
  • Ex-Viterra Staff Join MAG Commodities to Trade Black Sea Grains
  • China Gold Imports From Hong Kong Rebound on Decline in Prices 






















The Hedgeye Macro Team











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