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Just Charts: Bullish Large Cap Charts

The table below lists our current investment ideas as well as a list of potential ideas we are in the process of evaluating (watch list).  We intend to update this table regularly and will provide detail on any material changes.

Just Charts: Bullish Large Cap Charts - 1

 

Consumer Staples was flat week over week versus the broader market (SPX) up 1.2%. XLP is up 3.0% year-to-date versus the SPX at 2.8%. 

 

Events This Week (in EST):

 

Earnings Calls

Wednesday (5/29): SAFM 11am

Wednesday (5/29):  BNNY 5pm

 

Citi Global Consumer Conference

Tuesday (5/28):  BUD (9:05am); BG (9:05am); THS (11:20am); JAH (11:20am); DEO (2:25pm); SAB (3:55pm)

Wednesday (5/29):  MDLZ (8am); NUS (1pm); HAIN (2:30pm)

 

Sanford Bernstein Strategic Decisions Conference

Wednesday (5/29):  CL (8am); KMB (10am)

Thursday (5/30):  MKC (8am); EL (11am)

 

For over two months, XLP is bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up.

Just Charts: Bullish Large Cap Charts - 2

 

The Hedgeye U.S. Consumption Model has shown steady improvement over the past three weeks, with 5 of the 12 metrics flashing green for the second week in a row.

Just Charts: Bullish Large Cap Charts - 3

 

Despite the bullish quantitative set-up for the sector, we continue to believe that the group is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating, and Q2 2014 theme of #ConsumerSlowing
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth
  • The sector is loaded with a premium valuation (P/E of 19.6x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index (recently rescaled for cosmetic and not component reasons) has not seen any real improvement over the past 6 months, and fell to 34.1 versus 34.9 in the prior week

Just Charts: Bullish Large Cap Charts - 4

Just Charts: Bullish Large Cap Charts - 5

Just Charts: Bullish Large Cap Charts - 6

 

 

Top 5 Week-over-Week Divergent Performances:


Positive Divergence:  DF 7.7%; POST 5.0%; LO 4.5%; REV 3.9%; HLF 3.6%

Negative Divergence:  SODA -7.6%; HRL -4.7%; TSN -2.9%; CPB -2.3%; FLO -2.1%

 

 

Last Week’s Research Notes

 

 

Quantitative Setup

In the charts below we look at the largest companies by market cap in the Consumer Staples space from both a quantitative perspective and fundamental aspect where we can offer one.  As you will see over time, sometimes our fundamental view does not align with the quantitative setup (though not often).

 

BUD – bullish on almost every style factor that is working (big cap, slow-growth, etc.); TREND support = $105.87

Just Charts: Bullish Large Cap Charts - 7

 

DEO – recent bearish to bullish intermediate-term TREND reversal confirmed last week; TREND support = $125.28

Just Charts: Bullish Large Cap Charts - 8

 

KO – bullish on almost every style factor that is working; intermediate-term TREND support = $39.83

Just Charts: Bullish Large Cap Charts - 9

 

PEP – correction last week didn’t change the bullish intermediate-term TREND here – support = $83.87

Just Charts: Bullish Large Cap Charts - 10

 

GIS – still one of the best looking big cap slow-growth consumer names on my screens – TREND support = $51.72

Just Charts: Bullish Large Cap Charts - 11

 

MDLZ – correction last week came on no volume; bullish intermediate-term TREND intact at $35.45

Just Charts: Bullish Large Cap Charts - 12

 

KMB – stock has traded sideways for 3 months but remains a bullish intermediate-term TREND signal @Hedgeye with $108.09

Just Charts: Bullish Large Cap Charts - 13

 

PG – correction here looks more concerning than MDLZ or PEP as the TREND line is nearby at $80.13

Just Charts: Bullish Large Cap Charts - 14

 

MO – bullish TREND that holds most of the slow-growth-yield-chasing style factors the market is rewarding; TREND support = $38.61

Just Charts: Bullish Large Cap Charts - 15

 

PM – bearish to bullish TREND reversal confirmed again last week; intermediate-term TREND support = $83.48

Just Charts: Bullish Large Cap Charts - 16

 

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst


For a Bounce

Client Talking Points

VOLUME

At the all-time-high (Friday), total US Equity Market volume was down -23% and -41%, respectively, versus its one- and three-month averages. I still much prefer being short growth (Russell2000) than this crowded SPX short (-114,248 net short contracts as of Friday in the CFTC non-commercial data versus the six-month average net long position of +9,810 contracts).

USD

US Dollar up (+) Rates up last week was good for anything growth, for a bounce. If we were to see USD and Rates up beyond Hedgeye TREND signals, I’d be getting ready to change my mind on the growth call – unfortunately they are not.

DAX

Big rip to higher-highs for the German stock market yesterday and this morning is seeing another positive +0.4% of follow through. Contrary to central planning ideology, European stocks need a stable/strong Euro, so we’ll see if EUR/USD can hold its long term TAIL line of $1.35 support.

Asset Allocation

CASH 23% US EQUITIES 0%
INTL EQUITIES 10% COMMODITIES 20%
FIXED INCOME 24% INTL CURRENCIES 23%

Top Long Ideas

Company Ticker Sector Duration
HOLX

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.

OC

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.

LM

Legg Mason reported its month ending asset-under-management for April with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.  

Three for the Road

TWEET OF THE DAY

India -0.8%, S Korea -0.6%, Singapore -0.2%, Japan +0.2% @KeithMcCullough

QUOTE OF THE DAY

"The important thing is not to stop questioning." - Albert Einstein

STAT OF THE DAY

One in every four Americans is not saving for retirement at all, either because they are not thinking about it, do not really know how or, worse, do not feel they can afford to, according to a new report. (MSN)


Looney Tune Tape

This note was originally published at 8am on May 13, 2014 for Hedgeye subscribers.

“Mister Wabbit, before you die, you can have one wast wish.”

-Elmer Fudd

 

Was the wast wish to buy in May and pray? They dressed ole Elmer up in a Canadian Mountie uniform for that episode. When the US stock market won’t die, blame a Canadian. Must abandon risk management process and chase the performance wabbit, right?

 

Uh, no. Stay with what’s been working all year – #InflationAccelerating and slow-growth #YieldChasing assets (like commodities, bonds, and any stock that looks like a bond with low-beta and high-dividend-yield).

 

And on the short side, take your time and “be vewwy, vewwy quiet…” I’m hunting high-muwtipoh-momentum-bubbo wabbits that have popped back up out of their bombed out holes.

 

Looney Tune Tape - PeLooney8002

 

Back to the Global Macro Grind

 

“Wisten to the wippling wythm of the woodwinds…” and you’ll hear volume cwickets.

 

Yesterday’s total US Equity Volume reading was:

 

  1. -10% versus the 1 month average
  2. -31% versus the 3 month average

 

In other words, other than emotional hedge funds that shorted last week’s lows in almost every oversold momentum short (we sent out cover signals in IWM, ITB, YELP, last week #timestamped) there was no legitimate volume (read: conviction) behind yesterday’s rip.

 

In fact, going into the open yesterday:

 

  1. The net short position in SPX (Index + E-mini) was at a 6 month high of -54,587 contracts
  2. Three months ago (when you could have bought #MoBro top), the net short position was -30,429 contracts

 

“So”, many hedge funds were getting squeezed yesterday and those that still believe US GDP growth is going to be +3-4% in 2014 just kept averaging down into growth stocks, I guess.

 

While CNBC was nailing it with the Dow “at all-time-highs” yesterday, we sent out a short DIA (Dow ETF) signal in #RealTimeAlerts. But that’s not the best short idea we have – it’s waiting on the stocks that have been smoked to pop back up to our signal lines (YELP, TWTR, etc).

 

Don’t forget that the Nasdaq and Russell 2000 are still -4.9% and -6.2%, respectively, from where your broker could have plugged you buying the all-time-bubble-stock-high in early March. Most of these momentum, social, and housing stocks are still broken.

 

“Dwat that wabbit”

 

Yep, both the bond and currency market agree this morning:

 

  1. US Dollar Index is nowhere near overcoming its long-term TAIL risk line of $81.17 resistance
  2. US 10 year Treasury Yield of 2.65% couldn’t care less about people chasing performance wabbits in equities

 

“So”, if you have to buy something this morning, what do you buy?

 

  1. Utilities (XLU +10.3% YTD) have pulled back and are registering another buy signal
  2. Gold (GLD +7.3% YTD) has pulled back small and is a buy closer to TREND line support of $1271

 

And, what do you sell?

 

  1. Consumer Discretionary (XLY -3.3% YTD) has rallied on no volume to lower highs, so keep selling that
  2. US Dollar (UUP -0.2% YTD) has rallied sharply off its YTD lows, and remains bearish TREND

 

Yep, it’s really a macro call. Get the US Dollar and Rates right, and you’ll keep getting your Sector & Style Factors right. If you disagree with our view, you should be buying Dollars and growth stocks and shorting Bonds (like we did at this time last year) in size.

 

If you ask most consensus economists if they had the process to have you in the opposite this year as you were in last year (from an asset allocation perspective), they might go all-American-excuse-making Elmer on you too… “Yes! I mean NO, that is… I…. er… um…”

 

Looney Tune Tape, this has become. Chasing performance is not a repeatable risk management process. No worries though, I am sure the cartoon that this has all become will end willy willy well.

 

UST 10yr yield 2.57-2.67%

SPX 1871-1899

RUT 1094-1144

VIX 12.14-14.52

USD 79.11-80.01

EUR/USD 1.37-1.39


Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Looney Tune Tape - Chart of the Day


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.


It Never Gets Old

“Although I’ve made this walk thousands of times, it never gets old.”

-Ed Catmull

 

That’s how the President of Pixar Animation Studios, Ed Catmull, describes his life in the introduction to an excellent book I started reading this weekend called Creativity Inc. Catmull is a computer scientist who was hired in the late 1970s by a 32 year old by the name of George Lucas.

 

Catmull went on to run Pixar alongside another American capitalist by the name of Steve Jobs. He is 69 now and his book isn’t as much a memoir as it is a lesson in learning how to be creatively destructive, as a team.

 

The book’s early chapters will sound quite familiar to those of you who embrace the principles of transparency and trust alongside practical applications of  #math and #behavioral economics: “Honesty and Candor”, “Fear and Failure”, and “Change and Randomness.” #Solid summer time read.

 

Back to the Global Macro Grind

 

Walking onto the independent research platform we built 6 years ago never gets old. It gets more interesting and exciting the more we empower new players on our team to be the change. All the while, as my hair gets greyer, I’m still banging out this Early Look note just trying to keep up!

 

Trying to keep up with no-volume rallies in the preferred hedging instrument of thousands of hedge funds (SPX and E-minis) never gets old either. “Why are we up?”, “Why can’t we go higher?”, “Why can’t I beat beta?” – the underlying whine to this whole thing can make a man want to go on vacation.

 

Setting aside that we have not been recommending short SPY (we’ve been making the call to short US Growth – i.e. the Russell 2000) here’s what’s going on with the emotion of it all:

 

  1. Friday’s no-volume-ramp to an all-time closing SPY high of 1900 came on one of the lowest volume days of the year
  2. Total US Equity Market Volume was -23% and -41%, respectively, versus its 1 and 3 month averages
  3. CFTC futures and options contracts in SPX (Index + E-mini) ended with a net SHORT position of -114,248 contracts

 

In other words, with almost 9,000 hedge funds trying to manage an all-time high in AUM (assets under management) of $2.7 TRILLION in a no-volume market that goes straight up after they shorted it in April-May, the short-term game gets tougher.

 

Putting the -114,248 net short contract position (SPX Index + E-mini) in context is critical:

 

  1. That’s -73,347 contracts week-over-week (almost 60% shorter)
  2. Versus the 6 month average of +9,810 net LONG position, that’s bearish positioning
  3. Versus the 1 year average of +62,224 net LONG position, that’s really really bearish


Where time, price, and positioning is relative to where it was, across multiple-durations, is how we analyze things here @Hedgeye. It’s all about the rate of change. And it changes, both fast and slow.

 

Why would consensus be getting bearish on US Growth?

 

  1. 10yr US Treasury Yield was only up 1 basis pt last wk to 2.53% = down -50bps YTD and signaling US #GrowthSlowing
  2. Despite its no-volume +2.1% bounce to lower-highs last wk, the Russell2000 is still -6.8% since March and -3.2% YTD
  3. US GDP for Q114 could be revised to NEGATIVE (from its preliminary +0.11%) when it’s reported this Thursday

 

I know. Everyone nailed it. Everyone you read every morning made the call that US GDP would be negative in the first quarter (it would have been -2% btw if the US government used MIT’s Billion Prices Project measurement of +3.9% inflation) and the 10yr yield would be -17% YTD.

 

But that doesn’t matter this morning, because the name of the game isn’t intermediate-term TREND investing – it’s short-term performance chasing, baby! So what would get me to saddle up and ride the spooo-hoo bull?

 

  1. US Dollar Up
  2. Interest Rates Up
  3. Commodity and Cost of Living Inflation Down

 

Ex #3 (US rents hit an all-time high last week and the CRB Commodities Index was up another +0.8% to +10% YTD), we actually got some of that last week:

 

  1. US Dollar Index +0.4% last week to back in the black (of +0.4%) YTD
  2. 10yr Yield up a beep (1 basis point) to 2.53%

 

Buying the all-time-high price in anything just isn’t how I roll. But if that’s the sort of thing you are into from a “long-term investing” perspective, here’s some short-term positivity that Mr. Macro Market looks like he might chase – on a 15-day duration, the SPX and USD have POSITIVE correlation of +0.60.

 

Yep, that was last year’s risk management call on being long growth (Dollar Up, Rates Up, Equity Growth Multiples Up – Bond Bulls smoked). The 2014 call is much more aligned with the 90-day INVERSE correlation between SPX and USD of -0.62.

 

Right now, USD is overbought and the bond market couldn’t care less about no-volume stock market rallies. Get USD and Rates right, and you’ll probably get the TREND calls in long growth vs slow-growth right. Although I feel like I have written about this on 1,000 macro mornings – it never gets old.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.47-2.61%
SPX 1

RUT 1089-1135

Nikkei 138

USD 79.99-80.49

WTIC Oil 102.67-104.77

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

It Never Gets Old - Chart of the Day


May 27, 2014

May 27, 2014 - Slide1

 

BULLISH TRENDS

May 27, 2014 - Slide2

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May 27, 2014 - Slide7 

BEARISH TRENDS

 

May 27, 2014 - Slide8

May 27, 2014 - Slide9

May 27, 2014 - Slide10

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May 27, 2014 - Slide13


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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