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Client Talking Points

SPX

At first risk happens slowly, and then it comes all at once...The S&P 500 has dropped back into the red for the year-to-date (The Dow is down -2.8% YTD) on an accelerating volume signal yesterday with VIX (volatility) confirming our TREND breakout above 14.71 earlier in the week . Study the factors in the bounce this morning. They’ll matter.

Europe

Both the DAX and Eurostoxx600 have also snapped my Hedgeye TREND signal lines this week. That’s new. For the record, no, I do not like this Janet-Yellen-sounding ECB President Mario Draghi talking about price fixing “forward guidance to curb Euro strength.” Not one bit.

Oil

Oil also broke our TREND duration signal line of $108.07 TREND support this week. Incidentally, with #InflationAccelerating, that’s probably the only good thing on my screen this morning for the U.S. consumer. Meanwhile, Consumer Discretionary (XLY) is down -1.4% year-to-date. Sorry.

Asset Allocation

CASH 48% US EQUITIES 4%
INTL EQUITIES 6% COMMODITIES 12%
FIXED INCOME 15% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
FXB

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.

DRI

Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road

TWEET OF THE DAY

4 of 9 sectors in our S&P Sector Risk Model are bearish on our TRADE duration; 5 are bullish @KeithMcCullough

QUOTE OF THE DAY

"Efforts and courage are not enough without purpose and direction." - John F. Kennedy

STAT OF THE DAY

The rich may have finally shaken off the recession. The number of U.S. households with a net worth of $1 million or more, excluding a primary residence, rose to 9.63 million in 2013, according to a new report from Spectrem Group, a consulting and research firm. That's more than a 600,000 leap up from 2012, and the highest number on record. (CNN)