Cartoon of the Day: Burp!

Takeaway: Keep moving out there – risk does.

Cartoon of the Day: Burp! - small cap burp 09.15.2014

"With the Russell 2000 down for the 2nd straight week to -0.3% for 2014 YTD, that’s why I still like staying net short (for long onlys its called underweight) one of the most obvious bubbles in America right now – small cap stocks that trade at 50x trailing earnings, with no liquidity," wrote Hedgeye CEO Keith McCullough in today's Morning Newsletter. "In other #bubble news, at 30x revenues and $220B in market cap, you’ll have plenty of liquidity in AliBubble (BABA) this week!"


Capital One Financial – What’s In Your Portfolio? | $COF

Takeaway: Steiner says the bullish thesis on COF looks strong into year end.

Hedgeye Financial sector head Josh Steiner says COF’s August results, released this morning, are a dose of steroids for his already strong bullish case for the stock. 


While the delinquency rate edged up a mere one basis point (1/100th of a percent) over the average for the last seven years, loan growth for August, as measured month-over-month, came in at three times the seven-year average. 

Steiner says credit quality appears to be holding stable, which means investors should view the latest spike in consumer borrowing in light of the latest bullish Consumer Confidence figures: people are borrowing more because they are earning more – or expect to – not because they are running out of options. 


Steiner says the bullish thesis on COF looks strong into year end.

Q&A: McCullough Answers Questions on Gas Prices and the Fed

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 80.52%
  • SHORT SIGNALS 78.67%

Oversold: Russell Levels, Refreshed

Takeaway: You also have a bullish catalyst (for both stocks and bonds) on Wednesday. If Yellen is dovish, that is…



Now that the Russell 2000 is back down to -1.3% YTD, people will sell. Sadly, that is what the momentum chasers do. But don’t be sad. Be glad. And capitalize on it.


Across our core risk management durations, here are the lines that matter to me most:


  1. Intermediate-term TREND resistance = 1181
  2. Immediate-term TRADE support = 1149
  3. Long-term TAIL support = 1124


In other words, if all you’ve done all year long is fade the Russell (both ways – buy low, sell high) and bought sub 1124, and sold > 1181, you like my jokes.


You also have a bullish catalyst (for both stocks and bonds) on Wednesday. If Yellen is dovish, that is…


Keep moving out there – risk does.



Keith R. McCullough
Chief Executive Officer


Oversold: Russell Levels, Refreshed  - RUT Index YTD Levels Refreshed


Monday Mashup: SBUX, LOCO and More

Investment Ideas

The table below lists our Investment Ideas as well as our Bench -- a list of potential ideas we are watching closely.  We intend to update this table regularly and will provide detail on any material changes.


Monday Mashup: SBUX, LOCO and More - 11

Notable Callouts

  • We removed short BNNY from our Investment Ideas list after the GIS bid.
  • Our short call on SBUX was featured in Barron's this weekend in a column titled "The Problem With Starbucks."
  • We are hosting a Best Idea call this Thursday, September 18, 2014 at 11am EST to run through our short thesis on SBUX and field questions.

Recent Notes

09/08/14 Monday Mashup: BLMN, PLKI and More

09/11/14 New Best Idea: Short SBUX

Events This Week

Monday, September 15th

  • YUM Investor & Analyst Conference Day 1

Tuesday, September 16th

  • YUM Investor & Analyst Conference Day 2

Wednesday, September 17th

  • DNKN Investor & Analyst Day
  • CBRL earnings call 11:00am EST

Chart of the Day

Coffee prices are up +52.5% YTD and +39.5% YoY.


Monday Mashup: SBUX, LOCO and More - chart2

Recent News Flow

Monday, September 8th

  • BAGL appointed Frank G. Paci as President and Chief Executive Officer.  Interim CEO Michael Arthur will continue to serve on the company's Board of Directors.  Mr. Paci most recently served as President and CEO at McAlister's Deli and has held prior roles at The Pantry, Pizza Hut and Burger King.
  • RRGB announced it will open its newest restaurant in New York state (Horseheads, NY)  on September 22nd.

Tuesday, September 9th

  • DIN introduced its new "Waffullicious Waffles" which will be available for a limited time.
  • MCD reported disappointing August comps as global same-store sales fell -3.7%, led by -4% and -14.3% declines in the U.S. and APMEA regions, respectively.
  • BJRI increased its existing unsecured revolving line of credit to $150 million from $75 million and announced the opening of its newest restaurant in Denton, TX.
  • KKD announced a greater Maryland and Washington DC area development agreement with Monument Restaurant VII for the development of 20 new Krispy Kreme shops over the next several years.

Wednesday, September 10th

  • YUM increased its quarterly dividend by 10.8% to $0.41.

Friday, September 12th

  • DRI Starboard released its transformation plan for Darden Restaurants in a 294 page slide deck.  If enacted, the activist believes its plan could unlock $19-38/sh in value.  This excludes the potential value that could be unlocked through an Olive Garden turnaround.
  • SBUX 6.2 million share block trade was priced at $75.15 through BoA.
  • LOCO celebrated the grand opening of its newest restaurant in Sacramento, CA.

Sector Performance

The SPX (-1.1%) outperformed the XLY (-1.3%) last week.  In aggregate, casual dining and quick service stocks outperformed the SPX.


Monday Mashup: SBUX, LOCO and More - chart3

Monday Mashup: SBUX, LOCO and More - chart4

XLY Quantitative Setup

From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.


Monday Mashup: SBUX, LOCO and More - chart5

Casual Dining Restaurants

Monday Mashup: SBUX, LOCO and More - chart6

Monday Mashup: SBUX, LOCO and More - chart7

Quick Service Restaurants

Monday Mashup: SBUX, LOCO and More - chart8

Monday Mashup: SBUX, LOCO and More - chart9


Howard Penney

Managing Director


Fred Masotta


Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    




1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “large speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.


The Cotton, Live Cattle, Lean Hogs markets experienced the most BULLISH relative positioning change in the CRB Index week-over-week.

  • Sentiment in the cotton market is joining the rally (+6.9% last week and +12% over the last month)
    • The CFTC Commitments of traders report released last Friday reflected the largest relative positioning change of any commodity in the CRB (remember the data reveals market positioning through last Tuesday rather than a snapshot at week-end)
    • Timing: Australia, which is the seventh largest cotton producer, cut production estimates for 2014-15 by -29% from its most recent June estimate. The news broke during the day last Tuesday which may explain the change in sentiment by the close of the session.
  • The lean hogs and live cattle markets have shown a significant divergence over the last month (Lean Hogs -7.3% vs. live cattle +4.4%). Spot-1Yr basis shown below outlines the bearish expectation for both markets moving forward    

The Sugar, Copper, Soybeans, and Natural Gas markets experienced the most BEARISH relative positioning change in the CRB week-over-week:

  • Sugar: Bullish sentiment in the sugar market was cut by -2/3rds week-over-week despite the huge divergence in the price spread between spot prices and contracts expiring in 1-year which are trading +28% higher.
  • Natural Gas: Market -9.3% shorter week over week and -8%/-23%/-37%vs. 1/3/6-month averages
    • Increase in Stockpiles: reached an 11-year low in March of this year
      • EIA data through last week shows 2.8 trillion cubic feet of stockpiles vs. ~800K at March Lows

Commodities Weekly Sentiment Tracker - chart1 cftc net positions


2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The Sugar, Corn, Wheat, and Coffee markets are positioned for HIGHER PRICES near-term
  • The Lean Hogs, Cotton, and Gasoline markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot second month basis 


3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The Sugar, Corn , Wheat, and Coffee markets are positioned for HIGHER PRICES in 1-year  
  • The Lean Hogs, Live Cattle, and Cotton markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1yr basis


4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.


Commodities Weekly Sentiment Tracker - chart4 aggregate open interest         


Ben Ryan



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