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Poll of the Day Recap: 70% Say Yes, Volume Matters

Takeaway: 70% voted YES; 30% responded NO.

Poll of the Day Recap: 70% Say Yes, Volume Matters - stock trading

 

Hedgeye CEO Keith McCullough wrote about the lack of recent buying conviction in today’s Morning Newsletter and has argued that volume matters because “stocks are making lower-highs versus the all-time-bubble highs; it’s extreme price versus volume divergences (from unprecedented prices).”
 

But we wanted your opinion in today’s poll: Does volume matter?
 

At the time of this post, the heavy majority went toward 70% voting YES; 30% responding NO.
 

As one YES voter explained, “It matters because it shows lack of participation by the broader market players. The broader market is likely positioned for a downside move and waiting for that catalyst can be painful and expensive.”

Other noteworthy YES comments included:

  • “Only in the very immediate term. Having been in secular decline, volume has held a near-perfect inverse correlation to the equity market over the past 5+ years. Better said, stocks pretty much only go up when volume is falling over longer durations.”
  • “Volume is only one of the many components that should be considered in gauging market up vs down days. Price action, VIX, sector rotations, bonds, currency action(s) are other major components. Albeit for this poll; Yes, volume does matter.”
  • “More importantly, [Dennis] Gartman is now Long of equities in equity terms.  Combine all factors and you get a major warning signal.”

Over in the NO group, however, one responder explained that volume “only matters if you’re on the wrong side of the trade,” while another believed volume “hasn't mattered for five years since the current rally began.”
 

Though one NO voter acknowledged that volume has been in secular decline since 2009, they specifically stated that it “will be even under more pressure with the rug being pulled out from HFT.”

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Green Screen Macro: Flowers, Showers, Ticking Clocks & Back-Half Ramps

Takeaway: Is anyone not expecting a bounce in the reported March/April fundamental data?

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - Weak in the Dollar large

 

Editor's Note: This note was originally sent to subscribers on April 17, 2014 by Hedgeye Macro Analyst Christian Drake. Follow Christian on Twitter @HedgeyeUSA.

SUMMARY

  • Green Screen Macro: Paint whatever eco-growth picture you want. And remember, when in doubt, herd your point estimate for growth right on the current consensus and… always, always, bake in the back-half ramp.
  • Tracking the Bounce: Is anyone not expecting a bounce in the reported March/April fundamental data? We continue to think the 2014, growth-slowing playbook remains the relevant one.
  • Initial Claims -  April Flowers: A fourth week of accelerating improvement. The numbers for the month-to-date are supportive of a strong April jobs report.
  • #InflationAccelerating: Food, energy, and housing are all key cost centers for the consumer and with inflation in each currently running at a premium to wage growth, share of wallet for other discretionary purchasing will remain under pressure
  • #HousingSlowdown: The pervasive deceleration in housing activity to start the year has extended itself into March/April - across geographies. The West, not the Northeast, has looked the worst.   
  • Policy Thoughts: The Ticking Clock: The Fed needs to get out if only to allow themselves to (credibly) get back in. The clock is ticking on the current expansionary cycle.  

Macro’s Green Screen

Listening to Yellen’s remarks and the referencing of her now enigmatic “dashboard” while staring at consensus growth estimates for 2014 provided this year’s most potent reminder that professional macro forecasting remains very much a storytelling exercise.   

 

Indeed, for Fed tea leaf readers, the chess match that has become massaged messaging to markets under the Fed’s fledgling, increased transparency directive only adds another distortive layer to the storytelling.

 

For forecasters...remember, when in doubt, herd your point estimate right on current consensus (which at a round 3% is, itself, just an un-imaginative expectation for a return to pre-recession Trend line growth) and always, always, bake in the back-half ramp

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - GDP estimates Cons

Slope Stacking: Tracking the Bounce

With a host of domestic macro metrics recording some of the biggest sequential declines in history in the weather-distorted December to February period, is anyone not expecting a bounce in the reported March/April fundamental data?   

 

What we’d like to see, in short, is the slope of growth track back toward the levels that characterized the heart of the 2013 acceleration.   

 

Thus far, the March/April data has been mixed as most measures have shown sequential improvement, but haven’t exhibited a material, rebound effect that would be suggestive of deferred activity and certainly haven’t retraced the cumulative declines realized in the peri-new year period.   

 

With the dollar holding in bearish formation, 10-year yield is broken (and declining in the face of the last few, low volume equity rallies), and inflation still rising alongside increasingly harder growth/inflation comps through 3Q14, we continue to think the 2014, growth-slowing playbook remains the relevant one.   

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - Macro Slope Stack

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - Eco Summary Table 041714

Initial Claims: April Flowers for Labor

Initial Claims has been the notable positive diverger from a fundamental data perspective over the last month. 

 

This morning’s labor data extended the streak of accelerating improvement to four consecutive weeks as the 4-week rolling average in non-seasonally adjusted claims improved to  -12.1%  year-over-year  vs. -10.5% the week prior.    

 

The trend in headline, seasonally-adjusted claims was similar with the 4-week rolling average falling -4.25K week-over-week to 312K, the lowest level since August of 2007.

 

As Josh Steiner, our head of Financials research at Hedgeye, highlighted: 

 

The weather's turn, particularly in the Northeast, remains coincident with the turn in the claims data. Based on the numbers so far, it looks like the April job's report will come in quite strong.

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - 2 normal

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - 1 normal

#InflationAccelerating

Headline CPI inflation accelerated +40 basis points sequentially to +1.5% YoY while Core CPI  accelerated +10bps to +1.7% YoY in March. Under the hood, the existent trends extended themselves as food, energy, and shelter price growth all continued to accelerate.  

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - Core PCE vs Food   Energy Inflation March

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - CPI Housings Pull march

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - OER Contribution March

 

Real Hourly Earnings of Production & Non-Supervisory Employees grew +0.8% YoY in March according to BLS data released Tuesday – a sequential deceleration of 70bps vs. the +1.5% YoY growth recorded in February – and nominal spending continues to grow at a positive spread to incomes

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - Spending vs. Earnings Nominal 041714

 

Food, energy, and housing are all key cost centers for the consumer and with inflation in each currently running at a premium to wage growth, share of wallet for other discretionary purchasing will remain under pressure. 

 

Further, with household savings rates already at the low end of the historical range, consumer credit growth (ex-auto & student loans) tracking sideways, equities down YTD and housing slowing, the capacity for non-wage related factors (i.e. credit, reduction in savings, wealth effect) to support incremental consumption growth appears constrained.  

 

Core PCE inflation, meanwhile, continues to list at approximately +1.0% YoY.  Persistent, sub-2% PCE inflation gives the Fed latitude to further talk down the dollar which, in our view, will only perpetuate rising inflation and, by extension, a slowdown in domestic consumerism.  

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - Median Consumer Expenditures

 

Source: Hedgeye Financials

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - loan compendium chart normal

#HousingSlowdown  

The pervasive deceleration in housing activity to start the year has extended itself into March/April - across geographies. The West, not the Northeast, has looked the worst.    

 

  • NAHB HMI:  Headline NAHB confidence increased 1 point month-over-month in April vs the downwardly revised March print. Notably, with the exception of the Northeast, builder confidence was flat or down across geographies. Confidence in the West region slid for a third consecutive month to 45, continuing its expedited drawdown from a peak reading of 71 just three months ago. 
  • Mortgage Applications: Yesterdays purchase application index rose 1.3% WoW  but remains -17% off the May 2013 peak.  Similarly, the composite index (purchase + refi) gained +4.3% WoW but remains in free fall at -58% YoY. We continue to believe the confluence of QM implementation, declining affordability, and a slowing consumer will drag on housing demand, with home prices responding on a lag.   
  • Housing Starts/Permits: Housing starts rose 26K MoM but missed estimates by a comparable amount while Building Permits went sub-1 million, declining -2.4% MoM to 990K.  On a relative basis, supply/demand/price dynamics in the new home market continue to compare favorably to those in the existing market.  Buyer demographics and the cumulative deficit in new housing units built since the recession should help buttress the relative downside in new construction activity.  

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - NAHB Regional

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - Mortgage Apps

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - Home sales by region NAR

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - San Fran Case Shiller

Quasi-random Policy Thoughts:
The Ticking Clock

By FOMC admission, the juice on quantitative easing (QE) has been largely exhausted and the risk/reward balance has shifted. If anything at this point, the Fed needs to get out if only to allow themselves to (credibly) get back in. 

 

A cessation of QE alongside decent macro data accomplishes two things. 

 

First, from a messaging perspective, it signals confidence in the ability for the private sector to carry the recovery forward. 

 

Second, stopping QE while the fundamental data is supportive implies that QE was (at least in part) effective in its objective.  Some measure of perceived effectiveness by the market allows them to come back to it should they need to.    

 

Perma-QE, however, is de-facto admission of its ineffectivenss, leaving it largely impotent as a forward policy tool.     

 

The line of thinking above isn’t necessarily new or novel but, as of April, the duration of the current expansion stands at 59 months – exactly the mean duration of expansions following recessions over the last 100 years. 

 

Sure, balance sheet recessions are defined by slower recoveries with lower amplitude, but do you think the Fed is completely unaware of the ticking clock?  

 

Green Screen Macro:  Flowers, Showers, Ticking Clocks & Back-Half Ramps - US Recession Cycle

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Cartoon of the Day | Beware of (Low) Volume

Takeaway: Lower-highs on lower-volume doesn’t confirm a renewed bull.

Cartoon of the Day | Beware of (Low) Volume - Price Volume 04.22.2014

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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%

McCullough: Beware of This Market Signal

 

CEO Keith McCullough discusses the recent trend of declining equity volume on "up" market days versus increasing volume on "down" market days.


'Generational Buying Opportunity' at Darden Just Got One Step Closer | $DRI

Takeaway: For whom does the bell toll? Darden's CEO Clarence Otis and his "management team."

Big news for beleaguered Darden shareholders today:

  • Activist investor Starboard has reportedly won a consent to call for a special meeting of Darden Restaurants shareholders.

'Generational Buying Opportunity' at Darden Just Got One Step Closer | $DRI - penney

The company has been and remains under intense pressure from a number of activist investors over the last year.

 

If you've been following this shareholder saga at all, you already know that Hedgeye's Howard Penney has been leading the charge to oust Darden's wayward management and unlock shareholder value.

 

Clarence Otis' hot seat just got hotter...

 


 

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Chain Store Sales: Not Looking Good (and No Excuses Left)

Takeaway: Chain stores got no lift from Easter.

Chain Store Sales: Not Looking Good (and No Excuses Left) - emptymall

ICSC - Chain Store Sales Index

The latest International Council of Shopping Centers (ICSC)-Goldman Sachs weekly index (a measure of nominal same-store or comparable-store sales excluding restaurant and vehicle demand) has just been released. It doesn’t look good. The weekly index statistically represents industry sales and is not just a sum of sales for a handful of retailers.

TAKEAWAY FROM MCGOUGH:

There’s been no lift from the Easter shift with numbers flat year-over-year. If we look at the trailing 4-week average, numbers were down 40 basis points against easy compares.

 

With no excuses left in the chamber, it's shaping up to be a tough earnings season for a whole host of retailers.


This latest number dovetails with our #1 Q2 Macro Theme:

  • #ConsumerSlowing: The cyclical increase in consumer spending growth from the 2009 lows is under pressure. Rising food prices and a stagnating USD continue to squeeze average Americans on the margin. Given the potential for further USD depreciation and a continuation of global commodity inflation as a real macro risk, we think U.S. consumption growth will slow as it bumps up against difficult compares heading into 2Q and beyond.

Chain Store Sales: Not Looking Good (and No Excuses Left) - chart1 4 22 large

 

Editor's Note: This is a research excerpt from Hedgeye Retail Sector Head Brian McGough. Follow McGough on Twitter @HedgeyeRetail

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