TODAY’S S&P 500 SET-UP – April 18, 2013

As we look at today's setup for the S&P 500, the range is 31 points or 0.84% downside to 1539 and 1.16% upside to 1570.            










  • YIELD CURVE: 1.48 from 1.47
  • VIX closed at 16.51 1 day percent change of 18.27%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init Jobless Claims, April 13, est. 350k (est. 346k)
  • 8:30am: Cont Claims, April 6, est. 3.075m (prior 3.079m)
  • 9am: Fed’s Kocherlakota speaks in New York
  • 9:30am: Fed’s Lacker speaks on credit in Charlotte, N.C.
  • 9:45am: Bloomberg Economic Expectations, April (prior -4)
  • 9:45am: Bloomberg Consumer Comfort, April 14 (prior -34)
  • 10am: Philadelphia Fed, April, est. 3.0 (prior 2.0)
  • 10am: Leading Indicators, March, est. 0.1% (prior 0.5%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to purchase $2.75b-$3.5b in 2020-2023 sector
  • 11am: Bank of Canada’s Carney speaks in Washington
  • 12pm: Fed’s Raskin speaks in New York
  • 1pm: U.S. to sell $18b 5Y TIPS
  • 4:15pm: Asmussen, Rehn, Dijsselbloem speak in Washington


    • 10am: Senate Armed Svcs Cmte hears from Dir. of Natl Intelligence James Clapper, Defense Intelligence Agency Dir. Michael Flynn on threats
    • 10am: Senate Health and Labor Cmte hears from Labor Sec. nominee Thomas Perez at confirmation hearing
    • 11am: President Obama speaks at interfaith service in Boston
    • 11:30am: House Speaker John Boehner, R-Ohio, holds briefing
    • 1pm: State Dept hears public’s final comments on Keystone, which would carry tar sands from Canada to U.S. Gulf Coast
    • House to vote on H.R. 624, Cyber Intelligence Sharing and Protection Act, which White House threatened to veto


  • G-20 draft affirms pledge to avoid competitive devaluations
  • Herbalife unlikely to hire new auditor before investor meeting
  • PBOC’s Yi says yuan trading band to widen in near future
  • Japan March exports exceed analyst ests. after yen slide
  • Wells Fargo urges judge to dismiss U.S. mortgage loan fraud suit
  • SEC to move past financial crisis cases under new chairman
  • American Express profit beats est. as card spending climbs
  • SEC sues Schottenfeld trader Mancuso over Goffer insider tips
  • Biggest cinemas delay ‘Iron Man’ ticket sales in Disney dispute
  • Explosion hits Texas fertilizer facility, unknown number dead


  • BB&T (BBT) 5:45am, $0.68
  • WESCO International (WCC) 6:15am, $1.14
  • KeyCorp (KEY) 6:17am, $0.19
  • Fifth Third Bancorp (FITB) 6:30am, $0.39
  • AutoNation (AN) 6:45am, $0.64
  • Hubbell (HUB/B) 6:58am, $1.09
  • Danaher (DHR) 6am, $0.76
  • UnitedHealth (UNH) 6am, $1.14 - Preview
  • Morgan Stanley (MS) 7:15am, $0.56 - Preview
  • Sonoco Products (SON) 7:30am, $0.53
  • Verizon Communications (VZ) 7:30am, $0.66 - Preview
  • Fairchild Semiconductor (FCS) 7:30am, $0.05
  • PrivateBancorp (PVTB) 7:30am, $0.29
  • Watsco (WSO) 7:30am, $0.33
  • Baxter International (BAX) 7am, $1.05
  • Omnicom (OMC) 7am, $0.75
  • People’s United Financial (PBCT) 7am, $0.18
  • Penn National Gaming (PENN) 7am, $0.65
  • PepsiCo (PEP) 7am, $0.71 - Preview
  • Philip Morris International (PM) 7am, $1.34 - Preview
  • TransForce (TFI CN) 7am, C$0.26
  • Alliance Data Systems (ADS) 7am, $2.52
  • Pool (POOL) 7am, $0.05
  • Snap-on (SNA) 7am, $1.34
  • PPG Industries (PPG) 8:11am, $1.54
  • Syntel (SYNT) 8:30am, $1.03
  • Amphenol (APH) 8am, $0.86
  • Freeport-McMoRan (FCX) 8am, $0.71 - Preview
  • Peabody Energy (BTU) 8am, $(0.14) - Preview
  • Blackstone Group (BX) 8am, $0.53
  • Sherwin-Williams (SHW) 8am, $1.09
  • Union Pacific (UNP) 8am, $1.96 - Preview
  • Cypress Semiconductor (CY) 8am, $0.01
  • Nucor (NUE) 9:01am, $0.24 - Preview
  • Home BancShares (HOMB) 9:15am, $0.61
  • Ultratech (UTEK) 9am, $0.49
  • Acacia Research (ACTG) 4pm, $0.50
  • Align Technology (ALGN) 4pm, $0.23
  • Cubist Pharmaceuticals (CBST) 4pm, $0.32
  • Chemed (CHE) 4pm, no est.
  • Chipotle Mexican Grill (CMG) 4pm, $2.13 - Preview
  • Hub Group (HUBG) 4pm, $0.42
  • Associated Banc-Corp (ASBC) 4:01pm, $0.25
  • B&G Foods (BGS) 4:01pm, $0.37
  • Google (GOOG) 4:01pm, $10.67 - Preview
  • Microsoft (MSFT) 4:02pm, $0.68 - Preview
  • Capital One Financial (COF) 4:05pm, $1.62
  • E*TRADE Financial (ETFC) 4:05pm, $0.12
  • International Business Machines (IBM) 4:05pm, $3.05
  • Cepheid (CPHD) 4:05pm, $(0.02)
  • Forward Air (FWRD) 4:05pm, $0.39
  • Intuitive Surgical (ISRG) 4:05pm, $3.97 - Preview
  • Electronics for Imaging (EFII) 4:05pm, $0.32
  • EastGroup Properties (EGP) 4:05pm, $0.77
  • Restoration Hardware Holdings (RH) 4:06pm, $0.61
  • Advanced Micro Devices (AMD) 4:15pm, $(0.17)
  • City National (CYN) 4:15pm, $0.92
  • Celanese (CE) 4:30pm, $0.78
  • Glacier Bancorp (GBCI) 4:30pm, $0.28
  • Valmont Industries (VMI) 5:30pm, $2.52
  • Western Alliance Bancorp (WAL) Aft-mkt, $0.21
  • Cytec Industries (CYT) Aft-mkt, $0.87 


  • Copper Poised to Enter Bear Market as Industrial Metals Slide
  • Nickel Rout Seen Easing With Output Costs Breached: Commodities
  • Gold Gains as Price Drop Lures Buyers, Economic Data Falls Short
  • Goldman’s Contrarian Currie Foresaw Gold Collapse Paulson Missed
  • Brent Rises From Nine-Month Low; No Emergency OPEC Talks Seen
  • Copper Set to Enter Bear Market on Demand Concern: LME Preview
  • Gold Tumble Stokes Demand From Indian Bazaars to Chinese Malls
  • Gold’s Worst Plunge Since 1983 Ends 12-Year Bull Run: Timeline
  • Palm Oil Advances as Decline to Lowest This Year Seen Excessive
  • Gold’s Deviation to Stocks Tips Equities Rally: Chart of the Day
  • Oil Firms Break Promise on Biofuels as Chevron Defies California
  • BHP Billiton Cuts CEO Pay as Mining Industry Profits Decline
  • China’s Poultry Feed Demand to Slump 20% on Bird-Flu Outbreak
  • Copper’s Drop ‘Not Sustainable’ Near Term, NAB’s Knight Says























The Hedgeye Macro Team












Today we shorted Dollar General (DG) at $51.68 a share at 3:49PM EDT in our Real-Time Alerts. Dollar General is immediate-term TRADE overbought and McGough doesn't like the top-line compares pending.




Below, we go through our thoughts on this upcoming earnings season in order of release dates.


Chipotle Mexican Grill (CMG) 4/18: We would stay away from this stock on the long side as expectations for the second half of the year have become aggressive. Price performance has been strong during the year to-date and the company has benefitted from decelerating inflation. Pending further indication that returns are bottoming, we are remaining on the sidelines. The street is expecting SRS of 1% in 1Q13. One key question is whether management will raise prices in 2H13 to protect margin. We think this is a likely move.


McDonald’s (MCD) 4/19: We’re bearish on McDonald’s and are hosting a call on April 25th to go through our bearish thesis in greater detail.  One concern that we have expressed for approximately a year is the self-inflicted wounds that are having a negative impact on operational efficiency and, as a result, speed of service. This has been a factor behind the decline in the core business that the Street, anticipating an acceleration in trends during the second half of 2013, doesn’t seem to be embedding in its expectations.  In Europe, many of the issues that hurt the company in 2012 are still present in 2013. The most important European market, Germany, continues to experience economic malaise and the FX outlook is also a headwind for the stock given the thigh exposure to Europe from an operating income perspective (~40%).  We believe the company has ample means to manage the EPS number for 1Q13, but expect a negative revision of earnings expectations as the year progresses. The stock has broken higher from $85 with no supporting increase in earnings estimates. The 1Q13 consensus estimate of $1.26 or 3% EPS growth looks aggressive, but the company has many levers to manage the number.



Brinker (EAT) 4/23: We’re bullish on Brinker’s stock as one of the best ways to play our macro team’s bullish Strong Dollar, Strong America theme (Down Commodities, Up Consumption).  EAT represents the best way to play casual dining on the long side, in our view, particularly if macroeconomic growth continues to stabilize. The Street is estimating that Chili’s SRS will be -0.9%, implying a Gap-to-Knapp of 40 bps. We expect the company to beat the current expectation of $0.69, or 15% versus the year prior, in EPS for 3QFY13. 


Yum! Brands (YUM) 4/23: We’re bullish on this stock for the long-term TAIL duration but, due to current headlines in China, it is not an easy time to be long the stock. Looking past the near-term, we believe that YUM represents the best growth stock in the restaurant space. Ongoing negative news flow from China is likely to weigh on sentiment into earnings.


Panera Bread (PNRA) 4/23: We’re bearish on PNRA, having recently held a call with clients (reply to this email for replay, materials) outlining our bearish bias on the stock. We believe that traffic and price/mix expectations for the remainder of the year are unlikely to be achievable in tandem; consensus is likely to be disappointed by comparable sales growth in 2013.


Bloomin’ Brands (BLMN) 4/24: This Company is one of the most overvalued names in casual dining. Earnings have been boosted by the impact of the recent refinancing but top line trends continue to be slower than some have been expecting. The stock has momentum, currently, and is supported by a bullish sell-side. Continuing operational improvements are needed for the company to maintain its premium valuation and we would remain on the sidelines into earnings.


The Cheesecake Factory (CAKE) 4/24: In February, we pitched CAKE long during Hedgeye’s 2/11 Best Ideas call and the stock has performed strongly since, up 11%. Strong top-line momentum has supported the stock. 4Q12 same-restaurant sales grew 1.3% at The Cheesecake Factory and declined -3.2% at Grand Lux Cafe.  Consensus is looking for +0.7% and -0.9%, respectively, in 1Q13.  consensus expectations for 14% EPS in 1Q13 and the FY13 seem very achievable.  One of the more underappreciated parts of the CAKE story is the emergence of the international business.


Dunkin’ Donuts (DNKN) 4/25: We are positive on DNKN heading into the earnings announcement. We expect Dunkin' to be a solid performer over the near-, intermediate-, and long-term durations (TREND, TRADE, TAIL).  A significant portion of the company’s new unit growth is being driven by existing franchisees and we expect the franchisee base to strengthen as weaker operators fall away from the system.  This improving employment picture and deflation in coffee costs should provide a boost to the franchisee base and management’s earnings.


Starbucks (SBUX) 4/25: We remain bullish on Starbucks as headwinds related to employment and input costs support the top and bottom lines, respectively, in CY13. We expect management to strike a confident, bullish tone on the 2QFY13 earnings call as the improving job market in 1Q likely gave management increased reason for optimism. We see Starbucks as having the highest degree of leverage, of all companies in the restaurant space, to an improving job market.


BJ’s Restaurants (BJRI) 4/26:  We believe BJRI will continue to underperform as erratic same-restaurant sales growth weighs on expectations. On 4/2, we wrote a note advising clients to stay away from this still-loved stock despite the eye-catching underperformance versus the S&P 500.  A strong Chili’s is bad for BJ’s, particularly as some of that strength is likely coming from the new flatbread items on offer at the Brinker-owned chain. We expect the multiple to remain in the 8-10x EV/EBITDA range unless traffic recovers in the next couple of quarters.


Texas Roadhouse (TXRH) 4/29: We are bearish on TXRH as the stock is ahead of the company’s fundamentals. Relative to the two-year run rate of 5% in 4Q12, consensus seems to be conservative at a 2.3% estimate for 1Q13 same-store sales.  TXRH unit level returns are some of the lowest in the industry and as a result don’t generate significant ROIIC.  We don’t see the leverage in the business model that will allow the company to grow EPS 12% in 1Q13.


Buffalo Wild Wings (BWLD) 4/29: We have backed away from our bearish stance on BWLD given the decline in chicken wing price and improving consumer environment in the U.S.  Our most pressing concern is that the company is trying to managing food costs to a specific margin. We have seen in the past that this can cause operational issues for BWLD. Specifically the company’s aggressive pricing strategy in late 2012 will likely have a negative impact on traffic trends, which may cause the cash flow multiple embedded in the stock to contract.


Wendy’s (WEN) 5/8: Wendy’s is in no man’s land. We like the long-term TAIL thesis that CEO Emil Brolick and his management team will begin to generate consistently positive traffic trends at Wendy’s but the stock seems to be ahead of the fundamentals at this point. Significant cash flow demands will continue to impact free cash flow as the onerous task of fixing the asset base is undertaken.



Howard Penney

Managing Director


Rory Green

Senior Analyst


Viva Deflation! Collapse of the Commodity Complex Accelerating

Takeaway: $USD strength should drive ongoing commodity deflation. The march CPI decline typified this effect.

Yesterday we hosted our 2Q13 Macro Investment Themes call ( you can access the replay info HERE).  Below is a visual review of the 1Q13 strategy playbook from the call:  In short, strong dollar driven energy and commodity deflation is bullish for domestic consumption and negative for commodity leveraged exposure (XLE, XLB, Gold, Brazil, Russia, etc).   We think this theme still has some legs in 2Q13.  


(Prices as of 4/15/13) 

Viva Deflation!  Collapse of the Commodity Complex Accelerating - 1Q13 Playbook


Yesterday’s inflation and housing data typified this dollar based flow cycle and exemplified the macro dynamics we’d like to see persist for us to stay positive on domestic consumption.  While housing starts breached the 1M threshold (note also that this morning’s mortgage applications index printed a new high & remains positive for forward housing activity), Headline CPI declined -0.2% M/M on the back of broad Food & Energy price deflation. 


With the dollar in bullish formation (Bullish across TRADE, TREND & TAIL durations) and the U.S. economic data and forward policy outlook looking okay on an absolute basis and a bit better than okay on a relative basis, we expect the strong dollar - commodity deflation relationship to extend itself further. 


Collectively, Energy and Food represent 24.26% of the CPI index and ~13.4% of personal spending (PCE).   Given the persistent and generally strong inverse correlation between the dollar and Oil/Gasoline and the fact that the commodity settles in dollars, the flow through impact to price is rather direct.  


Ag and Soft commodity prices, however, are hostage to a host of disparate influences that could predominate price trend over a given duration (think dollar strength, speculation, weather, etc).  All else equal, the impact of a strong dollar on food prices should manifest disproportionately across foodstuff categories that are pure commodity with limited branding (no branding or large private label presence) and strong industry competition.


For food categories such as protein or select dairy where these strong dollar leverage dynamics exist (branded is proportionally lower and competition is multitudinous) the impact should be more apparent as price throughout the distribution chain should tend to more accurately and rapidly reflect current input price costs.  We’re seeing some evidence of that in the March report and will continue to monitor the relevant food categories for ongoing impact.      


Viva Deflation!  Collapse of the Commodity Complex Accelerating - CPI Core vs Headline   FE Table


Households spend >$431B on gasoline and motor fuel on an annual basis which equates to approximately 3.8% and 2.7% of total household spending and GDP, respectively.  The idea that lower gas prices support other discretionary consumption is intuitively appealing and stands as perhaps the most accessible example of scalable impact – a single consumer saving $5/wk at the pump is fairly insignificant, but multiplied and annualized across a registered vehicle base of 240 million and the numbers compound to something material rather quickly.


According to FHWA and EIA data, total registered vehicles, total vehicle miles, average vehicle miles per licensed driver and average fuel economy have been relatively stable in recent years.  If we make the simplifying assumption of static totals for those metrics over the 2011-2013 period, it allows for a digestible, if imprecise, estimate of the implied impact of gas price changes on personal income and capacity for other discretionary purchasing.   In short, each $0.10 decline in gas prices from the 1Q13 average level of $3.56 implies approximately $10B in increased capacity for other discretionary purchasing.  On a year-over-year basis, the current national average gas price of $3.52 (vs. a 2Q12 average of $3.70) equates to an ~$18B annualized difference in non-fuel related spending capacity. 


Notably, given the prevailing $USD strength and the accelerating collapse pervading the commodity complex, it appears likely we break the normal seasonal pattern of sequential acceleration in fuel prices from 1Q to the typical annual peak in 2Q.   


This simplified view ignores price sensitivity of demand for gas consumption itself and the marginal propensity for other, non-fuel consumption, but it does provide a tractable framework for viewing the magnitude and direction impact of significant fuel price changes on the capacity for alternative consumer activity. 


Collectively, some measure of housing wealth effect, emergent positive real earnings growth, the resolution of tax refund delays, and a real-time tax cut via fuel and food price deflation should help to buttress consumption in the face of tax law changes and concentrated, sequestration related fiscal drag impacts over the next couple quarters.  


Viva Deflation!  Collapse of the Commodity Complex Accelerating - Fuel Consumption Table


Viva Deflation!  Collapse of the Commodity Complex Accelerating - Ave National Gas Price


Viva Deflation!  Collapse of the Commodity Complex Accelerating - Real Weekly Earnings 041713 


Viva Deflation!  Collapse of the Commodity Complex Accelerating - Housing Wealth Effect


Christian B. Drake

Senior Analyst 


Athletic Sales: Big Week For UA

Takeaway: UA's sell-through numbers continue to look good ahead of what should be a good quarter. Sustainability in FW growth is key issue/opportunity

Quick comment on weekly POS data.

Though aggregate sales trends in athletic footwear and apparel remain fairly consistent, we’re seeing some interesting movement amongst the brands – specifically UnderArmour.


UnderArmour had a monster week in both apparel and footwear – great timing given that it reports earnings on Friday. UA’s apparel sales continue to run at a 30% clip, which is very consistent despite a downtick for the category in general. But UA Footwear clocked in growth over 70% last week per NPD. That’s on top of 40-50% growth in the preceding two weeks. This is the first time we can recall UA’s market share ever being closer to 2% than 1%.


It’s been our view that UA will need to step up its SG&A dollars in the back half to achieve the kind of growth (footwear and international) that investors are paying for. If the company can hang on to the growth rate we’re currently seeing in footwear for the duration of the year, it will add about 4%-5% consolidated growth to the parent. We’ll be surprised if this is the case – especially given the fact that UA is currently going against its easiest compares of the year (they get tougher in mid-May).


Nonetheless, these numbers can’t be ignored. And with a good print coming up on Friday and excitement around UA’s analyst meeting in June, they’re coming at a good time for its multiple. The sustainability of this growth rate is officially the number one issue we’re focused on right now with UA.



UnderArmour’s Footwear Business Is Having a Great April

Athletic Sales: Big Week For UA - uachart11

Source: The NPD Group


Athletic Industry Sales: Athletic Footwear and Apparel (Trailing 3-week)

Athletic Sales: Big Week For UA - chart111

Source: SportscanINFO, ICSC, The NPD Group, and Hedgeye



Athletic Industry Sales: Athletic Footwear and Apparel

Athletic Sales: Big Week For UA - chart222

Source: SportscanINFO, ICSC, The NPD Group, and Hedgeye


Footwear Market Share By Brand

Athletic Sales: Big Week For UA - chart333

Source: The NPD Group

Tough Spot: S&P 500 Levels, Refreshed

Takeaway: Sometimes my risk management signals front-run what will become my fundamental research views. Sometimes they are head-fakes.

This note was originally published April 17, 2013 at 10:45 in Macro



The research reasons for taking down my gross long exposure into last week’s highs, and not ramping that up (yet) again here on red aren’t there. The risk management signals are. Sometimes my signals front-run what will become my research. Sometimes they are head-fakes.


That’s what makes this 1557 level a tough spot. It’s my immediate-term TRADE line – is it support (Friday and Tuesday) or is it resistance (Monday and Wednesday)? Inquiring stock market operating minds want to know (including my own). I don’t know.


Away from 1557, across my core risk management durations here are the lines that matter to me most:


  1. Immediate-term TRADE resistance = 1601
  2. Immediate-term TRADE support = 1540
  3. Intermediate-term TREND support = 1515


In other words, even if 1557 snaps, we have a big landing area of support (where I wrote a note titled “Buyem” at 1540 a few Friday’s ago). So what to do now? Just wait and watch – I think the market does a pretty good job telling us where to make the big moves.


#StrongDollar, Down Gold/Oil/Copper is a fantastic pro-growth research signal for Consumption assets. Our Q2 Global Macro Themes deck goes through the research views on that. This note is all about the risk management levels, what I am thinking right now, and why.


Tough Spot: S&P 500 Levels, Refreshed - SPX

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