Sell in May and Go Away?

Client Talking Points


Our total U.S. Equity market volume reading was down -26% and -40%, respectively, versus the one- and three-month average volume studies yesterday. It’s easily one of the worst up price/down volume readings I have ever seen.


#InflationAccelerating continues (Wheat and Corn up +1.9% yesterday; Coffee up another +0.9%; US meat prices hitting all-time highs) into the USDA’s global grain harvest report on Friday. Meanwhile, ramping US cost of living continues to augment our #ConsumerSlowing and US #HousingSlowdown calls.


Sell in May and go away? It’s been a great run for Italian Equities (up +14.4% year-to-date), the Euro, the Pound, etc. but on good Service PMI prints out of the UK, Spain, and Italy this morning, equities don’t seem to care. I’m watching lower-highs very closely. We still like European growth more than US growth, but don’t have to wear it all summer long.


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


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


Whatever u do today, do not quote America's Currency Credibility (USD) hitting fresh YTD lows @KeithMcCullough


“Great thoughts speak only to the thoughtful mind, but great actions speak to all mankind.” –Theodore Roosevelt


The German drug maker Bayer has agreed to acquire Merck’s consumer care business for $14.2 billion. The deal will make Bayer one of the largest providers of over-the-counter products, giving it control of several well-known brand names, including Claritin, Coppertone and Dr. Scholl’s. (New York Times)


LEISURE LETTER (05/06/2014)

Tickers: HOT, MAR


Tuesday, May 6

• RHP Q1 earnings – 10am , Passcode: 25122491

• SHO Q1 earnings – 12pm

• TRIP Q1 earnings – 4:30pm

• DIS FQ2 earnings – 5pm , Passcode: 36995300


Wednesday, May 7

• STAY Q1  – 830am

• STN Q1 – 4pm

• CZR Q1 – 5pm , Passcode: 20337702


Thursday, May 8

• PCLN Q1 – 730am

• MPEL Q1 – 830am , Passcode: MPEL

• CAR Q1 – 830am , Passcode Avis Budget

• BEE Q1 – 10am , Passcode: 10895989

• HOT – 10:10am presenting at Baird's 2014 Growth Stock Conference

• SGMS Q1 – 430pm , Password: SGMS


Friday, May 9

• HLT Q1 earnings – 10am , Passcode: 25981567

• AHT Q1 earnings – 11am


Monday, May 12

• DRH Q1 earnings – 10am , Passcode: 66393516

• HMIN Q1 earnings – 9pm


Tuesday, May 13

• HTHT Q1 earnings – 9pm , Passcode 28722442


Paradise Entertainment - has placed more of its multi-game live dealer-table hybrids in Macau casinos.  Wynn has added 34 terminals to bring it to 80; MGM has added 50 to reach 109; and Casino Macau Jockey Club has installed 172 terminals.  The terminals are being used by Macau casinos to offset the cap on live table games and are targeting lower-wagering customers.

Takeaway: Paradise and Shuffle Masters are doing well in Macau


HOT – announced it will open 35 hotels in the Middle East in the next three years, expanding its portfolio to over 80 hotels.  Starwood will open seven new hotels in the Middle East this year, in both established and fast-growing markets such as the United Arab Emirates (UAE), Iraq and Bahrain. 

Takeaway: Growth in the Middle East


MAR – announced 14 new properties in the UAE and Saudi Arabia at the Arabian Hotel Investment Conference in Dubai.

Takeaway: Not to be outdone by its competitor.



Macau Labor Day Visitation – Macau welcomed 551,957 tourists in the 4-day holiday starting May 1, an increase of 20.3% YoY.  

Takeaway: A strong start to May and we forecast Macau May GGR to increase 20% YoY


Greater China Travel – State-run agency Xinhua reported that the mainland enjoyed a record-breaking figure of 37 million train journeys made by Chinese travelers during the Labour Day holiday this year, surging 16% from last year.

Takeaway: Mainland Chinese continue to travel despite a economic cross currents.


Avian Flu (H7N9) – Guangzhou suspended sales of live poultry at nearly a third of its wet markets as the providence began a four-month test.

Takeaway: Reactions to bird flu threats have been muted lately following many false alarms.


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


Vanishing Volume

This note was originally published at 8am on April 22, 2014 for Hedgeye subscribers.

“Nothing entirely disappears in history.”

-T.J. Stiles


But the US stock market’s volume in the last 5 trading days almost has…


#History, as eloquently defined by T.J. Stiles in The First TycoonThe Epic Life of Cornelius Vanderbilt, is “threads of tattered old fabric – especially social fabric – ever woven into new tapestries.” (pg 79)


Especially on the Old Wall, what’s stale to you and I eventually becomes the new. More commonly called consensus, it’s the art of front-running storytelling that makes us money. No pattern of predictable market behavior entirely disappears; especially with the benefit of looking in the rear-view mirror.


Back to the Global Macro Grind


So let me tell you a story this morning about Vanishing Volume. As with any good story, you need a good headline. After I effectively failed my first creative writing course in New Haven, a nice young professor taught me alliteration. Two v’s. Yep, so easy a Mucker can do it.


Vanishing Volume - vol1


What’s not easy for the financial media to tell you are original content stories that require a basic level of algebra and a contextual overlay (you know, something like, say, a time series… so that you can see something meaningful, like the rate of change).


Usually, it’s easier to show these historical matters in pictures. So, instead of reading my rant, you can just skip to Christian Drake’s Chart of The Day and get the point. What we’re showing you here is the lack of buying conviction (i.e. total US equity market volume, across all exchanges):

  1. Volume on DOWN DAYS = +8% versus the 1 month average
  2. Volume on UP DAYS = -5% versus the 1 month average
  3. Yesterday’s volume (an UP DAY) was -18% versus the 1 month average

Fair enough. Since it feels like half of America took the day off again yesterday, you can accuse me of cherry picking that one nasty day of no-volume. So I’ll broaden my horizons to the last 5-days. UP day volume was -14% versus the average.


Now, if you only use a Moving-Monkey (more commonly called a simple 50 or 200 day moving average), you don’t care about risk factors like this. Single-factor (price only) models are point and click. My 6yr old can do it on Yahoo Finance. No underneath the hood analysis of volume or volatility required.


Vanishing Volume - Volume Total Mkt

In my process (studying fractal patterns, returns, draw-downs, etc. of US stocks), using a multi-factor model is critical. And to be clear, it’s not that I have anything against monkeys… I used to use those things too (newsflash: they don’t work).


What’s the alternative? As a basic predictive signal, what works?

  1. Price UP, Volume ACCELERATING, and Implied Volatility FALLING = bullish
  2. Price DOWN, Volume ACCELERATING, and Implied Volatility RISING = bearish
  3. PRICE UP on DOWN VOLUME and Implied Volatility unchanged = bad

And really bad if you go all multi-duration and cross-asset-class (more factors) in your analysis!


So let’s go there.

  1. SP500 broke out (on no volume) above its intermediate-term TREND support of 1834, but failed at immediate-term TRADE resistance of 1887
  2. Nasdaq didn’t breakout above either my TRADE or TREND lines (bearish TREND with no support to fresh YTD lows)
  3. Russell2000 didn’t breakout above my TRADE or TREND lines of resistance either
  4. US Dollar Index bounced to lower-highs but remains below my TAIL risk line of $81.17 resistance
  5. US Bond Yield (10yr US Treasury) bounced to lower-highs but remains below my intermediate-term TREND resistance of 2.81%
  6. Nikkei (which is the upside down of the UP Yen vs USD move) failed at 14,835 TRADE resistance overnight = bearish TREND (-11% YTD)

I can keep going deeper and delve into the depths (more alliteration – see, I can do this without Janet – Yes I Can!) of the non-linear ecosystem that is the Global Macro Market – but I will not… because every good line of storytelling needs to simplify the complex.


What will be extra complex is seeing how Goldman and Credit Suisse explain their “buy Facebook (FB)” call from yesterday if my WhatsApp! man Zuck doesn’t deliver the 14x revenue bacon tomorrow. As for the buy Apple (AAPL) ahead of the quarter thing, that’s not how I roll.


I’m a macro man, so my main focus into and out of earnings events will be how the bubbles (Biotech and Social Media) trade after making lower-highs on lower-volumes. Biotech (IBB) was +2.3% yesterday but remains below @Hedgeye TREND resistance.


Oh, and Housing stocks (ITB) made fresh 2014 lows yesterday (-5.3% YTD), but let’s not story-tell about vanishing housing demand (while rates are falling) until tomorrow…


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


SPX 1834-1887

VIX 12.39-15.90

USD 79.32-80.15

EUR/USD 1.37-1.39

Pound 1.67-1.69

Gold 1284-1309


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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Mass trends in the market remain disconcerting.  Genting outperforms in VIP.



Market trends

  • Thanks to better hold, Singapore gross gaming revenues increased 11% YoY  and 28% QoQ in Q1 2014 to S$2.2 billion.  Adjusting for hold (based on average since inception for both properties) for both periods, GGR fell for the 2nd consecutive quarter, -6% YoY. 
  • Despite Genting's growth, market VIP rolling chip volume shrank 9% YoY to S$39.8 billion in 1Q 2014 - the 2nd consecutive quarterly drop.  It is worth noting that comp were very difficult at S43.8 billion last 1Q
  • Mass revenue dropped another 6% YoY in Q1, the 3rd consecutive quarterly decline 
  • Net non-gaming revenue fell 1% YoY in Q1 the 2nd consecutive quarterly decline 
  • Market hold was 3.15%
  • Market historical hold since inception for both properties was 2.82%

Market shares

  • MBS GGR share is in-line with the 3 year average but below recent trends 
  • On a hold-adjusted basis, MBS lost 4% share to Genting this quarter
  • MBS lost volume share on both the VIP and Mass side with 41% of VIP rolling chip share and an estimated 55% of mass table volume share

* Blue trend lines in the charts below are from MBS's perspective













Ironic Inflation?

“Irony is just honesty with the volume cranked up.”

-George Saunders


Since I won’t see any of our competitors on the Old Wall write about anemic stock market volume or US #ConsumerSlowing today, I stretched and cited an American short story writer from Texas. Since you don’t have a lot of time this morning, I’ll keep it tight.


“When I’m explaining something to you, if I’m being long-winded, and twisty… I could make you feel vaguely insulted. And you’d have a right to be.”

-George Saunders


Back to the Global Macro Grind

Ironic Inflation? - Sell in May 05.05.2014

The irony in talking about the truth on Wall Street today is that more and more people agree with it. If they didn’t, there wouldn’t be a net short position in the SP500 (Index + Emini futures and options contracts = net short position of 10,057 contracts coming into the open yesterday).


If buy-side pros weren’t getting real on #InflationAccelerating slowing US growth, you wouldn’t be seeing every hedge fund in America that was running +60-80% net long on January 1 tightening up their net exposures to the growth side of the US stock market either.


Yesterday’s no-volume +0.19% bounce to lower-highs on the SP500 (Russell2000 was -0.3% on the day) had the following volume readings:

  1. Total US Equity Volume was DOWN -26% versus the 1-month average yesterday
  2. Total US Equity Volume was DOWN -40% versus the 3-months average yesterday

In other words, next to Easter Monday, it was the lowest volume Monday we have witnessed all year (and it wasn’t Easter Monday!). So what was it? Was it the weather? When the weather is nice on the East Coast, does everyone take Monday’s off?


You’d be hard pressed to convince me that as a country socializes its downside (and in doing so limits its upside) that its people don’t get lazier. Before you know it, it’ll be cool to work less than they do in France. Ah, la belle Providence, RI!


Enough of my opinion on this no-trust-no-volume-rally-to-all-time-bubble-highs. I’m sure everyone will be able to get out, at the same time. Here’s what else was happening in the real-world of #InflationAccelerating yesterday:

  1. Wheat prices up another +1.9% to +18% YTD
  2. Corn prices up another +1.9% to +16% YTD
  3. Coffee prices up another +0.9% to +77% YTD

I know, I know. If you back all this stuff out, there’s no inflation. Got it. If you can find me an employer who dynamically adjusts your paycheck to real-time food, shelter, and energy, let me know. I’ll short his stock.


BREAKING:Ruble Plunge Hitting Russians” –Bloomberg


Unlike some of Mike’s inflationary Big Government Intervention policies in NYC, that headline from his mother ship of market storytelling is economically accurate. When a government burns the purchasing power of its people (its currency), its poor people get hit, hard.


BREAKING: “US Dollar Hits Fresh YTD Lows, Hammering Americans” –NY Times



The NY Times, CNBC, and/or any of its government access offspring wouldn’t dare put what helped JFK get elected (“Strong Dollar, Strong America” on the cover of the NY Times #1960s). That would incriminate Obama for having a Down Dollar policy that is pulverizing America’s poor.


With the US Dollar Down for the 3rd consecutive week:

  1. The Euro is punching a fresh YTD high up at $1.39 (vs USD)
  2. The British Pound continues to crush it (+6% vs USD in the last 6 months) to a fresh YTD high of $1.69
  3. The Yen continues to signal bullish TREND in our model (vs USD) at +3% YTD

And that’s with these Japanese dudes printing what, 60-70 TRILLION Yens a year? Hooowah! Gotta love the irony in America’s domestic currency policy when compared to that.


In our government PIG model (our GIP – Growth, Inflation, Policy model, bass-ackwards), using the weapon of mass inflation (P – Policy) there are 2 big things the government can use to drive the value of your hard earned currency:

  1. FISCAL policy (to spend moarrr, or not, remains the question)
  2. MONETARY policy (to print, print, print, or to tighten, remains the question)

On the fiscal side, as US growth slows, you can bet your Madoff that Obama is going to spend. On the monetary side, as Janet realizes it’s not just the weather that the US Consumer is eating this summer, I think she’ll get easier (or rhetorically un-taper).


That’s Dollar Bearish, Rates Bearish, and real US Growth Bearish. Since the Policy To Inflate cranks up your cost of living. There’s no irony in that.


Ironic Inflation? - Chart of the Day


Our immediate-term Global Macro Risk Ranges are now as follows:


UST 10yr Yield 2.56-2.67%


RUT 1099-1140

USD 79.05-79.74

EUR/USD 1.37-1.39

Pound 1.67-1.69

Natural Gas 4.59-4.85

Gold 1

Corn 5.01-5.31


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer

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 80.47%
  • SHORT SIGNALS 78.68%