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Overbought: SP500 Levels, Refreshed

Takeaway: Our immediate-term risk range says there’s a risk spread of -3.5% (1650-1592), so we’ll sell some.

POSITION: 4 LONGS, 4 SHORTS @Hedgeye

 

Nice rally (on no volume) after A) holding TREND support (1592) and B) breaking out above our TRADE line (1621) on more US Employment #GrowthAccelerating news (both NSA rolling Jobless Claims and Monthly Payrolls) last week.

 

Who said #RatesRising is bad? And for who? Where to from here? Our immediate-term risk range says there’s a risk spread of -3.5% (1), so we’ll sell some (taking net exposure from 7 LONGS, 3 SHORTS Friday to 4 by 4 here).

 

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

 

  1. Immediate-term TRADE overbought = 1650
  2. Immediate-term TRADE support = 1621
  3. Intermediate-term TREND support = 1592

 

In other words, this risk range is narrow and trade-able, and we’re cool with that. The SP500 is in a Bullish Formation (bullish TRADE, TREND, TAIL) and the VIX is in a Bearish Formation, so we’re trying to thread the needle here within our range – but at least we know that.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Overbought: SP500 Levels, Refreshed - SPX


Morning Reads on Our Radar Screen

Takeaway: A quick look at stories on Hedgeye's radar screen.

Keith McCullough – CEO

Japan Says China Using Force to Try to Change Status Quo (via Bloomberg)

Fed Says a Few Dealers Report Deterioration in MBS Market (via Bloomberg)

Groups gather in Turkish protest park after night of clashes (via BBC)

 

Morning Reads on Our Radar Screen - earth2

 

Howard Penney – Restaurants

High beef prices 'threaten consumer appetite' (via FARMINGUK)

@DunkinDonuts declared war on @Starbucks with an aggressive t-shirt. (click here to see pic)

101M Get Food Aid from Federal Gov’t; Outnumber Full-Time Private Sector Workers (via CNS News)

 

Daryl Jones – Macro

German Exports Decline Significantly and "Unexpectedly" (via Mish’s)

 

Michael Blum – President

CNBC Viewership Collapse Continues; Cramer, Kudlow Audience At Record Lows (via Zero Hedge)

 

Josh Steiner – Financials

FDIC to Tighten Screws on Banks, Require 5% Leverage (via CNBC)

BAC - #RoundTwo $8.5bn settlement hearing resumes after 3-week hiatus. (via CharlotteObserver)

 

Jonathan Casteleyn – Financials

NYSE Euronext to Take Over Administration of Libor From BBA (via Bloomberg)

 

Brian McGough – Retail

Wolverine World Wide (WWW) Keeps Shoe Sector A Step Ahead (via IBD)


Growth Is Where It's At

Client Talking Points

INDONESIA

The world’s 4th largest country (by population) continues to flash bearish divergences vs something like #WeimarNikkei (which was up +2.6% overnight giving US futures a bid.) Jakarta down -0.4% all the while. It is down -15.4% since May 20.  #EmergingOutflows continues.

FTSE

The FTSE is up +1% here this morning with the DAX up about the same. The FTSE is back above its TREND line of 6371, whereas the DAX is still below hers of 8262. The capital flows out of Commodities, Debt, and Emerging Markets are looking for parking spots right now. These are two to watch. #liquidity

UST 10YR

The10-year is down 9 basis points on the week so far to 2.65%. This gives Gold a bit of a bid off the year-to-date lows. Correlation risk remains obvious from USD to rates to commodities and Emerging Markets. The 10-year risk range is 2.56-2.74%. Higher-lows and higher-highs #bearish for bonds.

Asset Allocation

CASH 51% US EQUITIES 21%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 28%

Top Long Ideas

Company Ticker Sector Duration
WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road

TWEET OF THE DAY

US growth stocks continue to be where it’s at (Russell hits all-time high again yest); rest of world all over the place

@KeithMcCullough

QUOTE OF THE DAY

The two most important days in your life are the day you are born and the day you find out why. – Mark Twain

STAT OF THE DAY

Since Bernanke first raised the possibility of tapering in May 22, the yield on 10-year Treasury notes has risen to 2.64% on July 8 from 2.04%. Treasuries lost the most since 2009 in the first half of the year and posted their longest run of quarterly declines since 1999. (Bloomberg)


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July 9, 2013

July 9, 2013 - DT

 

BULLISH TRENDS

July 9, 2013 - 10yr

July 9, 2013 - spx

July 9, 2013 - nik

July 9, 2013 - dxy

July 9, 2013 - oil

 

BEARISH TRENDS

July 9, 2013 - dax

July 9, 2013 - VIX

July 9, 2013 - euro

July 9, 2013 - yen

July 9, 2013 - natgas
July 9, 2013 - gold

July 9, 2013 - copper


Macro Tourists

This note was originally published at 8am on June 25, 2013 for Hedgeye subscribers.

“As they have come, so shall they go.”

-Ataturk

 

In one of the more interesting chapters (Chapter 26: The End of The Ottomans) of Paris 1919 – Six Months That Changed The World, I found that prescient Middle Eastern history quote by Mustafa Kemal (Ataturk).

 

“In 1919, few foreigners had ever heard of him; four years later he had humbled Britain and France and brought into existence the new nation-state of Turkey.” (Paris 1919, page 369)

 

Ultimately, Ataturk’s vision for a more stable state was based on a simple belief that people are more apt to trust what they know. As confidence falls, foreigners are often the first to flee. That’s no different for most Macro Tourists investing in Emerging Markets.

 

Back to the Global Macro Grind

 

I think Kyle Bass coined the term Macro Tourist. It’s cute. I think he was alluding to people chasing Japanese Equities. It’s a clever term – it also annoys a lot of people who actually are what the term suggests.

 

Bass is a thoughtful guy, but since he only started investing on the buy-side in 2006, he’s hardly in a position to anoint himself the authority on all things Global Macro. So you can imagine why the prickly types like Dan Loeb felt pricked.

 

All personalities (including my own) aside, what Bass and Loeb are really calling attention to here is that we are all Global Macro Risk Managers now. If you believe in things like gravity, beta, and interconnectedness, that is…

 

The way we do Global Macro is A) as a team and B) from a math/theme perspective. At the top of every risk management morning, I’ll send the Top 3 Global Macro Risks that are trending in our model with some quant levels and thoughts.

 

Today’s Top 3 were China, FTSE, and Gold (I send this out at 6AM EST, every day):

 

1.   CHINA – down hard, then rumor, then bounce – Bernanke/Draghi type playbook for the Chinese as the entire world attempts to watch what we cannot see; Shanghai Comp closes -0.2%, #oversold, but crashing – bouncing on rhetoric doesn’t solve the long-term issues; TREND resistance = 2192

 

2.   FTSE – I learn the most during the bounces; this bounce in European Equities hasn’t seen 1 major index recapture any of my intermediate-term TREND lines; FTSE +0.8% to 6075, well below 6398 TREND resistance; DAX TREND line = 8014

 

3.   GOLD – bear market bounce of +0.14%; that’s not going to get anyone excited; neither will a 10yr UST Yield of 2.5% and a US Dollar recapturing $81.21 TREND support. Gold is turning into a good proxy for deflation – deflating Bernanke Bubbles, that is

 

I do this to help our Institutional clients contextualize immediate-term market moves within intermediate-term TRENDs. Consider them headlights. Some clients trade futures on them. Some provide immediate feedback/thoughts. Some probably just #delete.

 

Tourist or Global Macro pro, the market doesn’t care what you are. Mr. Market is going to correlate and frustrate; and he is usually working on a way to impose the most amount of pain, on the most amount of people, at the most inopportune time. #consensus

 

That’s why we Embrace Uncertainty each and every Global Macro morning. After the market issues its signals, it’s a lot easier to make risk adjusted decisions within a multi-factor, multi-duration, framework than it is to space out and watch consensus TV.

 

Global Macro TRENDs matter, because they tend to trend. Here are 3 new ones trending now:

  1. US Equity Volatility (VIX) is bullish TREND for the 1st time since October 2012 (new TREND support = 18.98)
  2. US Equity (SP500) intermediate-term TREND support of 1592 is broken
  3. Japan’s #WeimarNikkei has snapped her intermediate-term TREND line of 13,619

Will US Equities recover TREND support? Will front-month volatility break down through 18.98 VIX again? Will she stay or will she go? Oh, and what will be the catalyst? In the US, both Durable Goods and New Home Sales “expectations” look a tad high this morning.

 

Gold, Treasuries, and Emerging Markets blowing up aren’t the new TRENDs @Hedgeye to worry about. These are the ones that we proactively positioned you for. The real pin action is in signaling the new stuff.

 

Since we hockey players aren’t that bright to begin with, what we do is hire football players. My left-tackle is Darius Dale, and he and I tend to keep it pretty simple. We try our best to front-run shifts in the slope of growth and inflation lines.

 

Here’s what I mean by that:

  1. Local inflation is rising in some countries (Japan, Venezuela, etc.) whose currency is being debauched
  2. Gold and Emerging Market Debt are deflating via #StrongDollar and #RisingRates

In other words, some of the older Global Macro TRENDs are bumping into the new ones now. Correlation Risk is starting to whip around and volatility is starting to breakout. Macro Tourist or not, this makes getting the day-to-day tougher out there. So our advice this morning is still what it’s been for the last 3-4 weeks. Sell on strength.

 

Our immediate-term TRADE Risk Ranges are now (TREND bullish or bearish in brackets):

 

UST 10yr Yield 2.31-2.61% (bullish)

SPX 1566-1592 (bearish)

Nikkei 12,408-13,619 (bearish)

VIX 17.98-20.97 (bullish)

USD 82.19-82.98 (bullish)

Yen 96.05-97.91 (bearish)

Oil (Brent) 100.02-103.64 (bearish)

Gold 1254-1336 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Macro Tourists - Chart of the Day

 

Macro Tourists - Virtual Portfolio



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