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Silent Apprehension

“Wall St. was a street of vanished hopes, or curiously silent apprehension, and a sort of paralyzed hypnosis.”

-New York Times

 

Imagine that was the header for @NYT on the eve of America’s central economic planner in chief’s State of The Union. Newsflash: it’s not. That was the front page of the New York Times on the day after the 1929 US stock market crash.

 

John Coates cites the aforementioned headline in chapter 1 (The Biology of a Market Bubble) of The Hour Between Dog and Wolf and goes on to remind us that “research on body-brain feedback, even within physiology and neuroscience, is relatively new.” (pg 28).

 

So how are you feeling this morning? While you know that hope is not a risk management process, apprehension and paralysis are all part of the game. While it’s hard to sell`em on green and buy`em on red, fading your emotional state is often the precise action to take.

 

Back to the Global Macro Grind

 

I don’t know about you, but in the heat of the decision making moment I fade how I feel about markets a lot. Through 15 years of trial and error, I’ve learned to increasingly rely on multi-factor, multi-duration, risk management signals amidst the research noise.

 

Since I don’t have a dog (or wolf) in the fight in marketing a perma bullish or bearish position, I use the TRADE versus the TREND in order to tone down my testosterone. Yep, I’m a dude – keeping that under control matters!

 

To review our process lingo:

  1. TRADE is 3 weeks or less in duration
  2. TREND is 3 months or more in duration

The reason why I use “more” or “less” is because time in my model (days) varies inversely with volatility. In other words, if front-month volatility ramps +50% in a week, the number of days in my TRADE model falls, fast – and, if implied volatility (looking out on the curve) doesn’t confirm that immediate-term information surprise, I keep an above average amount of duration (time) in the TREND model.

 

That may or may not make sense to you. So to put it more simply:

  1. When both front-month and implied volatility are signaling lower-highs and lower-lows, a monkey can buy stocks
  2. When both front-month and implied volatility move from bearish to bullish TRADE and TREND, monkeys get killed

Momentum monkeys, I mean.

 

I know, I know. Every time I call someone a monkey, I trigger an emotional response. But, please, don’t be offended. I am a monkey too – I’m just one that tends to learn from the cage door being slammed on my fingers.

 

Volatility, of course, is the #1 risk factor that every major fund manager who has fallen from grace has messed up. Even the world’s best messed this up in bonds last June. Many more have already messed this up in Japanese and Emerging Market Equities YTD.

 

This is basically why I completely disagree with the concept of being an active “long-term investor” who doesn’t use an implied volatility risk management overlay. While it would be nice to wake up to sun and bananas at the zoo every day, reality is that every once in a while a storm rips the cages open and the tigers, who have been putting up with monkey-bull chirping for a year, are hungry.

 

Back to the actual levels, to keep this simple, let’s just focus on the inverse relationship between the SP500 and VIX:

  1. TRADE – SPX 1837 momentum support broke as 13.81 VIX resistance became immediate-term support
  2. TREND – SPX 1779 support was tested intraday yesterday (and held), but VIX 14.91 TREND is firmly intact

And here Mucker the monkey was covering oversold shorts (and buying one long, LVS) into the close as 1779 SPX held (which would be called a high-probability gamble - dealer shows a 6 in #BlackJack)… and the minute I saw Apple (AAPL) guide down, I thought it was going to be a gamble I’d pay for today (and deserve it).

 

But, the US Equity Futures are up 8-10 handles and I’ll play lucky on the open today instead. I won’t, however, confuse that with the next leg up in this market ripping to fresh all-time highs. Provided that 1837 SPX TRADE resistance and 14.91 VIX TREND support remain intact, I’ll be a seller again this morning on green (like we were in #RealTimeAlerts on the open yesterday).

 

I know that playing the game across durations isn’t for everyone. But this is what I do. And I like it. I can assure you that the longest of “long-term” investments you can ever make is starting your own company with all of your own money. And for me at least, that investment requires absorbing 24/7 risk management, apprehension, and pain – if you want the long-term to last longer, that is.

 

Our immediate-term Global Macro Risk Ranges are now (12 Big Macro Ranges are in our Daily Trading Range product):

 

SPX 1

VIX 14.91-20.41

USD 80.18-80.79

Pound 1.64-1.66 (bullish)

NatGas 4.58-5.15

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Silent Apprehension - Chart of the Day

 

Silent Apprehension - Virtual Portfolio


LVS: ADDING LAS VEGAS SANDS CORP. TO INVESTING IDEAS

Takeaway: We are adding LVS to Investing Ideas.

Gaming, Lodging & Leisure Sector Head Todd Jordan has added Las Vegas Sands Corp. (LVS) to Investing Ideas.

 

We will send out a full report for subscribers detailing Jordan's bullish case for the stock this week.

 

LVS: ADDING LAS VEGAS SANDS CORP. TO INVESTING IDEAS - vene7


THE M3: COD MANILA; CHANGI TRAFFIC

THE MACAU METRO MONITOR, JANUARY 28, 2014

 

 

MELCO CROWN BOOSTS INVESTMENT IN MANILA CASINO TO USD$680MM Macua Daily TImes

MPEL has raised its planned investment in City of Dreams Manila to USD680 million.  CEO Lawrence Ho said yesterday, adding that the figure could rise further. “It keeps going up. Our most recent number is USD680 million because PAGCOR will allow us more (gaming) tables and we keep finding great brands,” said Ho. City of Dreams Manila will open mid-2014 and is part of the government’s Entertainment City in the reclamation area on Manila Bay, which was modeled after the Las Vegas gaming strip.  City of Dreams Manila will open with 365 gaming tables, 1,680 slot machines and 1,680 electronic table games.

 

CHANGI AIRPORT TRAFFIC Changi Airport Group

December passenger traffic at Singapore's Changi airport rose 4.1% YoY to 5.12 million.

 

THE M3: COD MANILA; CHANGI TRAFFIC - chang


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January 28, 2014

January 28, 2014 - Slide1

 

BULLISH TRENDS

January 28, 2014 - Slide2

January 28, 2014 - Slide3

January 28, 2014 - Slide4

January 28, 2014 - Slide5

January 28, 2014 - Slide6

January 28, 2014 - Slide7 

BEARISH TRENDS

January 28, 2014 - Slide8

January 28, 2014 - Slide9

January 28, 2014 - Slide10

January 28, 2014 - Slide11
January 28, 2014 - Slide12

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 28, 2014


As we look at today's setup for the S&P 500, the range is 64 points or 1.32% downside to 1758 and 2.27% upside to 1822.       

                                                                                                                        

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.42 from 2.41
  • VIX closed at 17.42 1 day percent change of -3.97%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45/8:55am: ICSC/Redbook weekly retail sales
  • 8:30am: Durable Goods, Dec., est. 1.8% (prior 3.5%)
  • 9am: S&P/Case Shiller Home Price Index m/m, Nov., est. 0.8%
  • 10am: Consumer Confidence Index, Jan., est. 78 (prior 78.1)
  • 10am: Richmond Fed Manuf Index, Jan., est. 13 (prior 13)
  • 4:30pm: API weekly oil inventories

GOVERNMENT:

    • Federal Open Market Cmte begins final mtg under Fed Chairman Ben Bernanke, who’ll be succeeded by Janet Yellen
    • U.S. central bank may trim bond purchases in $10b increments over next 6 mtgs b/f announcing program’s end no later than Dec.
    • 8am: FTC’s chief privacy Peter Miller delivers keynote address at American Council for Technology and Industry Advisory Council’s Cybersecurity Forum
    • 10am: CFPB’s Cordray testifies at House Financial Services Cmte hearing
    • 10am: House Ways and Means Cmte holds hearing on how ACA definition of full-time employee affects jobs
    • 10am: Senate Banking Cmte hears from Ex-Im Bank Chairman Fred Hochberg on reauthorization of bank
    • 10am: House Agriculture, Energy and Trade panel meets on effect of intl trade agreements on small business
    • 1:30pm: House Homeland Security panel holds hearing on TSA’s criminal investigators
    • 9pm President Barack Obama gives State of the Union address
    • ~10pm Republican Conference Chair Cathy McMorris Rodgers, R-Wash., will deliver GOP response

WHAT TO WATCH:

  • Apple products losing steam put onus on Cook for new gadgets
  • Samsung keeps lead over Apple as China smartphones gain share
  • Tech cos. win deal to disclose U.S. requests for user data
  • Bank of Montreal agrees to buy U.K.’s F&C for $1.2b
  • Texas Industries said to reach deal for sale to Martin Marietta
  • President Barack Obama gives State of the Union address
  • Rep. Cathy McMorris Rodgers, R-Wash., to give GOP response
  • House, Senate leaders reach deal on farm bill
  • Ukraine premier steps down as lawmakers meet to end protests
  • U.K. 4Q GDP up 0.7%, matches forecast, ending best yr since ’07
  • India unexpectedly raises rate as rupee risks inflation goal
  • Honda becomes net U.S. exporter as Japan imports topped
  • Foxconn in talks with multiple U.S. states for manufacturing
  • Shell said to seek buyers for $1b stake in Ho-Ho pipeline
  • Credit Suisse said to plan $500m U.S. CLO amid slow start
  • Casablanca Capital to push for ops split at Cliffs Natural: WSJ
  • Google pays GBP400m to acquire U.K. Startup: Guardian
  • Vision care insurer VSP will cover Google Glass: NY Times

AM EARNS:

    • Air Products & Chemicals (APD) 6am, $1.33
    • AK Steel Holding (AKS) 8am, $0.05 - Preview
    • CIT Group (CIT) 6am, $0.80
    • Comcast (CMCSA) 7am, $0.68 - Preview
    • Corning (GLW) 7am, $0.28
    • Danaher (DHR) 6am, $0.95
    • DR Horton (DHI) 6am, $0.30 - Preview
    • EI du Pont de Nemours & Co (DD) 6am, $0.55 - Preview
    • FirstMerit (FMER) 7:30am, $0.37
    • Ford Motor Co (F) 7am, $0.28 - Preview
    • Harris (HRS) 6:3am, $1.18
    • Illinois Tool Works (ITW) 8am, $0.91
    • Lexmark International (LXK) 7am, $1.08
    • NextEra Energy (NEE) 7:30am, $0.97
    • Nucor (NUE) 9am, $0.40 - Preview
    • Pentair (PNR) 7am, $0.85
    • Pfizer (PFE) 7am, $0.52 - Preview
    • Polaris Industries (PII) 6am, $1.55
    • T. Rowe Price Group (TROW) 7:29am, $1.03

PM EARNS:

    • ACE (ACE) 4:01pm, $2.01
    • Albemarle (ALB) 4:03pm, $1.05
    • Amgen (AMGN) 4pm, $1.69  - Preview
    • Arthur J Gallagher & Co (AJG) 4:09pm, $0.49
    • AT&T (T) 4:01pm, $0.51 - Preview
    • Cirrus Logic (CRUS) 4pm, $0.77
    • Electronic Arts (EA) 4:03pm, $1.23 - Preview
    • Freescale Semiconductor (FSL) 4:05pm, $0.18
    • Illumina (ILMN) 4:05pm, $0.44 - Preview
    • Owens-Illinois (OI) 4:04pm, $0.52
    • RF Micro Devices (RFMD) 4pm, $0.13
    • Rock Tenn Co (RKT) 5pm, $1.76
    • Total System Services (TSS) 4pm, $0.47
    • VMware (VMW) 4:01pm, $1.00
    • WR Berkley (WRB) 4:01pm, $0.77
    • Yahoo! (YHOO) 4:05pm, $0.38 - Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Flows East as Refiners Recast Bars for China Defying Slump
  • Natural Gas Rebounds After Biggest Drop in Almost Nine Months
  • Nickel Glut Ending as Goldman Sees Rally on Ore Ban: Commodities
  • Copper Rebounds From Longest Losing Streak in Almost Five Months
  • Gold Declines on Speculation Demand to Wane With Fed Set to Meet
  • Deep South Set for Rare Winter Storm as Frigid Front Sweeps U.S.
  • Raw Sugar Extends Drop in NY, Falls to Lowest Since June 2010
  • Wheat Rallies on Concern Freezing U.S. Weather May Damage Crops
  • Rebar Futures Fall Most in a Week as Demand Drops Before Holiday
  • Platinum Miners Bet on Eight-Week Stockpile to Beat Strike
  • Falling Gasoline Hurts Exxon Plea for U.S. Crude Exports: Energy
  • Hong Kong Bans Live Poultry Sales, Culls Chickens As Virus Found
  • Basement Reservoirs May Hold 20% Additional Oil & Gas Resource
  • WTI Rises for First Time in Three Days on Freezing U.S. Weather

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Are You Well Informed?

This note was originally published at 8am on January 14, 2014 for Hedgeye subscribers.

“A vigilant and well-informed press, setting forth the truth…”

-Doris Kearns Goodwin, The Bully Pulpit

 

But what, precisely, is the truth? The truth is that Ray Dalio asks the same question in order to explain his investment process (minus the words ‘but’ and ‘precisely’). It’s the same question you need to be asking yourself every market day.

 

The 20th President of the United States, James A. Garfield, wasn’t talking about markets when he said that “the truth will set you free, but first it will make you miserable.” But for this morning, let’s lie to ourselves and pretend he did. For me at least, it’s the truth!

 

The truth is that for the 1st day of 2014, US stocks down (yesterday) has captured the top (most read) headline on Bloomberg.com: “SP500 Falls Most Since November Amid Valuation Concern.” Only one part of that headline story is true. The “valuation” part is just an #OldMedia editorial. Well-informed market practitioners can do better than that.

 

Back to the Global Macro Grind

 

Fresh off a feeding of our new born baby Lucy Taylor McCullough yesterday (she’s a beauty!), I walked upstairs to my post and bought-the-damn-bubble #BTDB into the US stock market close. Whether I was right or wrong in doing so isn’t the point. #Timestamps are truth.

 

Before I get into the why, I’ll just rehash the step by step process in terms of what I actually did:

 

1. After coming into the open with my first net neutral position of 2014 (8 LONGS, 8 SHORTS), I covered shorts

2. I didn’t cover any of these shorts on “valuation” (RRGB, MCD, LINE, F); I covered them because they were oversold

3. Then I waited, watched, and finally bought SPY on my signal at 3:38PM EST at $181.60

 

Having made every single mistake you can make in this game in buying things too early (which is typically followed up with excuses like, “but it’s cheap”), this time I actually took my time. Getting net longer on red should be a process, not an emotional episode in your life.

 

At Hedgeye there are 3 big parts to how we try to probability weight where Mr. Macro Market might move next:

 

1. History

2. Math

3. Behavioral

 

On the #history front, contextualizing the emotion of yesterday’s final selling moments is easy – that was only the 3rd one-day decline of over 1% for the SP500 in the last 3 months:

 

1. November 7th, 2013 = -1.32%

2. January 14th, 2014 = -1.26%

3. December 11th, 2013 = -1.13%

 

In other words, that’s why the first part of this morning’s Bloomberg headline is true. It was the biggest US stock market down day since November 7th, 2013 when the SP500 closed at 1747. If you bought SPY there, you could have sold it 101 handles higher (+6%) at the US stock market’s all-time closing high of 1848 on December 31, 2012. #truth

 

#History reminds us that past performance doesn’t predict future results. I have no illusions about that. Neither should you. So let’s dig into some of the math (levels, correlations, etc.) that got me to hit that SPY buy button yesterday:

 

1. PRICE: the SP500’s immediate-term TRADE oversold line of support = 1817 with TREND support well below that at 1771

2. VOLUME: my composite volume signal was in line with my TREND based average yesterday; nothing to freak out about

3. VOLATILITY: front-month VIX was obviously up on the day, but still well below @Hedgeye TREND resistance of 14.91

 

So that’s that. The #history and #math parts had nothing to do with “valuation” obviously.

 

How about the #behavioral side of the decision to buy SPY? I think about that in 2-big parts, levels and catalysts:

 

1. LEVELS: for a year now, performance chasers have been selling red and buying green; fade that consensus on the signal

2. CATALYSTS: A) Japanese Yen was signaling overbought and B) JPM was signaling immediate-term TRADE oversold

 

These are, of course, very immediate-term catalysts. But when making buy or sell decisions, what else would you use? Whether people admit it or not, without a tested and tried, real-time, decision making process, they’ll use emotion instead of high probability signal levels and catalysts - or at least I used to.

 

on A) and B):

 

A) The Global Macro Correlation Risk that is the YEN vs Nikkei relationship is crystal clear (Yen Down = Nikkei Up)

B) JP Morgan (JPM) beating earnings in this environment (fat Yield Spread) is research edge you either had or did not

 

On A) the Yen is -0.6% vs USD this morning and on B), thankfully I have a great Financials analyst in Josh Steiner (who has been The Bear on NSM as of late). But even if I didn’t have Steiner, I’d have had that JPM oversold signal alongside the Yen’s overbought one. Now the manic media can run headlines that “JPM Beat, Alleviating Valuation Concerns.”

 

You either have research and risk management signals that you trust, or you do not. They help keep me well informed.

 

Our immediate-term Macro Risk Ranges are now:

 

SPX 1817-1851

Nikkei 15045-15764

VIX 12.08-14.54

USD 80.29-81.35

USD/YEN 103.15-104.61

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Are You Well Informed? - Chart of the Day

 

Are You Well Informed? - Virtual Portfolio


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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