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Russell 2000: Levels Refreshed

Position: 11 Longs, 6 Shorts

 

Back on 7/1, with the index overbought and the setup for pro-growth exposure at the beginning of July beginning to look a lot like it did back in March, we issued a fresh Sell Signal at 1208 on the Russell. (Selling: Russell Levels, Refreshed)     

 

After a big drop Monday, the Russell tested its Intermediate-Term TREND line for two sessions before breaking through on the open.  

 

Looking across both sectors and asset classes, prices are telling a cohesive, slow-growth story:  

 

  • Bonds bid; yield-spread compression
  • Gold +1% (+1.7% on the week)
  • Consumer Discretionary (-0.6%)
  • Utilities (+0.8%)

 

REITs and Gold Miners outperforming vs. consumption driven sectors (consumer retail getting crushed) as our cyclical bearish call on U.S. consumption growth continues to unfold in sector divergences.

 

Tomorrow in our Q3 Macro Themes call (ping for access) we’ll outline our bearish thesis on the U.S. consumer into in the back half of the year. We continue to like Gold, Treasuries, and defensive sectors (XLU, REITs, XLE) in the face of further #Dollar Devaluation crushing already thin consumer margins. #Q3Slowing will be our first theme in the deck on tomorrow’s call.

 

Our core risk management levels on the RTY, with their respective durations, are as follows: 

  1. Intermediate-Term TREND Resistance = 1173
  2. Immediate-Term TRADE Oversold = 1154  

In other words, after an expedited -4% slide from the 1208 overbought signal, we got most of the correction we we’re looking for.  From here, we’ll remain better sellers of consumer centric, small-cap growth style factors on strength. 

 

Russell 2000: Levels Refreshed - Russell Levels 07.10.14


VIDEO: McCullough Explains His Caution to Fox Business' Maria Bartiromo

Hedgeye Risk Management CEO Keith McCullough sat down with Fox Business’ Maria Bartiromo for the hour on “Opening Bell” this morning and explained why he’s cautious on the markets, his concerns about stagflation, and why he continues to like gold.


Join Our Expert E-Cig "Speaker Series" - Are Vaporizers Stealing Share from Big Tobacco?

We look forward to continuing our Speaker Series on e-cigarettes and e-vapor with John J. Wiesehan, Jr., CEO of the Charlotte based company, Ballantyne Brands, LLC. The conference call will be held on Wednesday, July 16th at 11:00am EDT.

 

Ballantyne Brands is a leading private manufacturer with the third largest market share in the U.S. (xAOC channel) with such e-cig brands as Mistic and Neo and personal vaporizer Haus.

 

 

CALL OBJECTIVE 

Is the consumer switching to an alternative vaping product, and why?  Mr. Wiesehan, Jr. will offer his latest insights and expertise to Hedgeye's ongoing research on the e-cigarette/e-vapor category.

 

 

 KEY CALL TOPICS WILL INCLUDE

  • Industry developments and trends
  • How the FDA's proposed regulations stands to impact the industry
  • Ballantyne Brands product offering versus Big Tobacco's
  • What does future technology look like

 

KEY TICKERS

LO, MO, PM, RAI, ECIG, VPCO, BTI

 

 

ABOUT JOHN J. WIESEHAN, JR.  

John J. Wiesehan, Jr. is currently the CEO of Ballantyne Brands, LLC. A graduate of Lindenwood University in Saint Charles, Missouri, John spent time at General Electric as the Worldwide Operations Manager. From General Electric, he moved to Woods Industries as Vice President in the Sales and Marketing sector.  In October 2012, John joined Ballantyne Brands, LLC located in North Carolina and became CEO.

    

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 544867#
  • Materials: CLICK HERE (Slides will download one hour prior to the start of the call)

 

For more information please email


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Retail Callouts (7/10): FDO, Adi, NKE, JCP

Takeaway: FDO - little faith in core consumer. Adi releases 2nd fitness tracker...doubt we see a 3rd. Tough week for NKE soccer. RonJon speaks.

EVENTS TO WATCH

 

Friday (7/11)

  • PSMT - Earnings Call: 12:00pm

 

COMPANY HIGHLIGHTS

 

FDO - 3Q14 Earnings

 

Retail Callouts (7/10): FDO, Adi, NKE, JCP - chart2 7 10

 

Takeaway: Slight beat on the top line driven by a better than expected comp offset by  margin pressure due to sales mix (consumables penetration up 73bps), fixed cost deleverage, and increased ad spend led to the $0.04 EPS miss. We still have very little faith in FDO's core consumer.

 

AdiBok - Adidas Gets Smart

(http://www.wwd.com/footwear-news/markets/adidas-launches-fit-smart-7791209)

 

"Adidas unveiled Fit Smart, a fitness-training product worn on the wrist, at the Wearable Technologies Conference in San Francisco today...Fit Smart measures heart rate, calories, pace, distance and stride to calculate workout intensity."

"Fit Smart, which retails for $199, will be released in late August exclusively at Best Buy and Bestbuy.com, and then on Adidas.com."

 

Retail Callouts (7/10): FDO, Adi, NKE, JCP - chart1 7 10

 

Takeaway: Interesting move here by Adi given the moves made by its competition over the past 3-6 months. NKE appears to be walking away from fitness tracking hardware - choosing instead to outsource the design to Apple. UA won't be releasing another iteration of its Armour39 fitness tracker, deciding to partner with best-in-class products already on the market. This is the 2nd stab Adi has taken at the smartwatch/ fitness tracker, and our guess is that we won't see a 3rd. Sports brands have tried and failed repeatedly to establish a market presence in this growing category. Best to leave hardware to the Apples, FitBits and Jawbones of the world. 

 

AdiBok, NKE - Argentina Win Hands Adidas World Cup Win Before Final

(http://www.bloomberg.com/news/2014-07-10/argentina-win-hands-adidas-world-cup-win-before-final.html)

 

"Argentina, sponsored by Adidas AG, triumphed on penalty kicks in Sao Paulo to eliminate a Dutch side outfitted by Nike Inc. of the U.S. In the final, it will face fellow Adidas-backed team Germany, which defeated Nike-supported Brazil 7-1 on July 8. The Herzogenaurach, Germany-based company also outfitted the Spanish team that won the last World Cup in 2010."

 

Takeaway: Tough week for NKE soccer. First the Brazil disaster, then ManU, and now an all Adi final.

 

OTHER NEWS

 

JCP - Ron Johnson: ‘I was a terrible fit for J.C. Penney’

(http://www.chainstoreage.com/article/ron-johnson-%E2%80%98i-was-terrible-fit-jc-penney%E2%80%99)

 

  • "Ron Johnson, who has been keeping a relatively low profile since he was ousted from J.C. Penney in April 2013, took to the podium in May, as a guest lecturer at Stanford University."
  • "’It was disappointing because I really believed we would make it work, but it was a relief because the lesson I learned is I was a terrible fit for J.C. Penney,’ he said. ‘I'm a creative person, here's a company that isn't uber-creative. I believe in change, this company’s much more comfortable, like many people are, with the status quo.’"

 

Full Video: http://www.gsb.stanford.edu/news/headlines/ron-johnson-its-not-about-speed-market-its-really-doing-your-level-best

 

ZQK - Quiksilver Announces Additional Licensing Agreements

(http://ir.quiksilver.com/phoenix.zhtml?c=110264&p=irol-newsArticle&ID=1946381&highlight=)

 

  • "Quiksilver, Inc. (NYSE: ZQK) today announced that it has entered into licensing agreements for several product categories, including Roxy young girls and children’s apparel, watches and socks/legwear, as well as other product categories including luggage, beach towels and surfboards."

 

DSW - New DSW Designer Shoe Warehouse Stores Open in Canada

(http://investors.dswshoe.com/index.php?s=43&item=275)

 

  • "Town Shoes Limited is excited to announce the opening of its first two DSW Designer Shoe Warehouse locations in Canada. DSW Designer Shoe Warehouse will open at Heartland Centre in Mississauga and Woodland Hills in Newmarket, Ontario, on August 7."

 

AAP - American Apparel Signs Support Agreement with Standard General

(http://investors.americanapparel.net/releasedetail.cfm?ReleaseID=858956)

 

  • "American Apparel, Inc. announced it has reached a Nomination, Standstill and Support Agreement with Standard General L.P. and company founder Dov Charney, the beneficial owners of nearly 44% of the Company's outstanding stock. Under the agreement, Standard General will provide up to $25 million in immediate financial support to the Company, the Company's board will be reconstituted..."

 

LE - Lands’ End deploys Fit Predictor to help online shoppers get best fit

(http://www.chainstoreage.com/article/lands%E2%80%99-end-deploys-fit-predictor-help-online-shoppers-get-best-fit)

 

  • "Lands’ End has deployed Secret Sauce’s Fit Predictor service, which proactively finds a customer's best fit in seconds using existing data, without the need for physical measurements."
  • "For new customers without a Landsend.com shopping history, the service can predict the best fit based on the customer's sizing with other brands."

 

BEBE - Apparel retailer Bebe stores revamps management board

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=165677)

 

  • "bebe stores, inc. announced that Seth Johnson, Blair Lambert and Brett Brewer have replaced Caden Wang, Barbara Bass and Cynthia Cohen on the Company’s Board of Directors, effective immediately."

INITIAL CLAIMS: ACCELERATING IMPROVEMENT

Takeaway: Claims continue to lead the charge on the labor market front, although there may have been some tailwind from the July 4th week.

Positive Thinking

While most of us were barbecuing and reciting the Declaration of Independence last week, something else positive happened as well. Fewer people filed for initial unemployment insurance benefits.

 

There's been a steady stream of positive newsflow on the labor market front of late. Recent numbers from ADP, NFP, JOLTs and claims have all been pointing in the same direction. Claims numbers this morning suggest the rate of improvement may be accelerating still. The year-over-year improvement in NSA jobless claims surged to 16% in the latest week, up from 9% improvement in the previous week. Meanwhile, the 4-wk rolling average of NSA claims improved to 11% from 9%. One caveat is that the July 4th holiday last week may have created some distortion in the number. We'll see what next week brings.

 

The Data

Initial jobless claims fell 11k to 304k from 315k WoW. The prior week's number was unrevised. 

 

The headline (unrevised) number shows claims were lower by 11k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3.5k WoW to 311.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -11.4% lower YoY, which is a sequential improvement versus the previous week's YoY change of -8.7%

 

INITIAL CLAIMS: ACCELERATING IMPROVEMENT - 1

 

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INITIAL CLAIMS: ACCELERATING IMPROVEMENT - 19

 

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Yield Spreads

The 2-10 spread fell -3 basis points WoW to 207 bps. 3Q14TD, the 2-10 spread is averaging 210 bps, which is lower by -11 bps relative to 2Q14.

 

INITIAL CLAIMS: ACCELERATING IMPROVEMENT - 15

 

INITIAL CLAIMS: ACCELERATING IMPROVEMENT - 16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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