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The Best of This Week From Hedgeye

Takeaway: Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.

HEDGEYE TV

Contributor Call: Short Monsanto ($MON), Says BluePac's Chris Sommers

Hedgeye CEO Keith McCullough talks to Seeking Alpha Contributor and BluePac managing partner Chris Sommers about Sommers' high conviction short idea, Monsanto. 

 

HEDGEYE IN THE MEDIA

 

Video | McCullough on Fox Business Talks Macro, Markets and More 


Here is a series of videos from Hedgeye CEO Keith McCullough’s appearance Monday on Opening Bell with Maria Bartiromo.

CARTOON

No Russell Muscle

The Best of This Week From Hedgeye - Russell nomuscle 10.20.14

Don’t forget that even though the Russell was up for the first week in seven last week, over 60% of stocks in the Russell 2000 are currently crashing (-20% from their 12-month highs).

 

#GROWTHSLOWING

The Best of This Week From Hedgeye - Growthslowing europe us 10.22.14

Economic growth is slowing around the world.

 

YELP

The Best of This Week From Hedgeye - YELP help 10.23.14

Yelp stock plunged Thursday following its earnings report when management guided revenues lower for the fourth quarter. Hedgeye Internet analyst Hesham Shaaban has been the bear on Yelp all year long.

CHART

Don't Be Intimidated 

The Best of This Week From Hedgeye - COD 10.23.14

 

Useless Sleep

The Best of This Week From Hedgeye - COD 10.21.14

 

POLL OF THE DAY

Holiday Shopping

As Target today announces free shipping for all online orders, we wanted to ask you about your shopping plans this holiday season.

 

 


COFFEE: FOLLOW THE SIGNALS AND DON’T BE FOOLED BY FAVORABLE WEATHER IN BRAZIL

The day-to-day speculation around the health of the Brazilian coffee crop has successfully driven market prices during the current harvest season. We added Coffee on the long-side in real-time alerts (ETF: JO) on Monday after an oversold signal.

 

From a quantitative standpoint, the ETF JO is currently sitting above both its TREND (intermediate-term) and TAIL (long-term) lines and we expect support at these levels:

  • TREND = $34.70
  • TAIL = $33.89

COFFEE: FOLLOW THE SIGNALS AND DON’T BE FOOLED BY FAVORABLE WEATHER IN BRAZIL - chart 1 levels chart

 

FOLLOW THE SIGNALS:

  • TRADE (3 weeks or less)
  • TREND (3 months or more)
  • TAIL (3 years or less)

 

When our internal quant signals (support and resistance levels over multiple durations) infer a bullish set-up over the intermediate and long-term, we look to market sentiment and overall positioning for confirmation on the immediate-term TRADE signals.

 

The price movement in coffee this week is not all that uncommon in the softs space (coffee in particular is the most volatile commodity in the CRB commodity index).

Based on the set-up of non-commercial players in coffee futures and options markets as disclosed weekly by the CFTC, capitulation in long positions likely added to the sell-off. We expect to see a marginally shorter market when this week’s “commitments of traders report” is released after the close:

 

The market was positioned 1.68x standard deviations longer vs. trailing 12-month averages while bullish market activity diverged from absolute prices.

 

COFFEE: FOLLOW THE SIGNALS AND DON’T BE FOOLED BY FAVORABLE WEATHER IN BRAZIL - CFTC Sentiment

 

We saw much higher relative volumes on the green days and lower relative volumes on the red days.

There is a difference between getting stopped out on a long-position, and consistent, healthy selling (getting this right is part of assessing real, inherent risk in any market):

  • Monday (BEARISH PRICE/VOLUME SIGNAL): Price Down, Volume Up
  • Tuesday (BULLISH PRICE/VOLUME SIGNAL): Price up, Volume UP
  • Wednesday (BULLISH PRICE/VOLUME SIGNAL): Price Down, Volume Down
  • Thursday (BULLISH PRICE/VOLUME SIGNAL): Price Up, Volume Up

There is a behavioral difference between a downward price move from large positions being stopped out on a long-position, and consistent, above average selling. We want to see consistent selling on above average volumes, with implied volatility bid-up to confirm market participants respect the move.

This week, we saw downside moves, on fewer trades, with implied volatility selling for -14.2%, -5.8%, and -2.8% below 1m/3m/6m averages. Implied volatility was selling for 53% last Friday and is now selling for 44%.      

At the money implied volatility is much lower on the week with a much flatter Dec. 14’ listed skew

 

COFFEE: FOLLOW THE SIGNALS AND DON’T BE FOOLED BY FAVORABLE WEATHER IN BRAZIL - Dec 14 implied skew 

 

With this set-up we’ll look to add to coffee on an oversold signal should nothing change from a fundamental standpoint.

 

We’re sitting on a loss but don’t believe the fundamental outlook for coffee has changed materially this week to support a -8.9% sell-off.

Coffee is the most volatile commodity in the CRB Index, and we expect these large price swings that often widely decouple from the fundamental story over the short-term. The higher ratio of open interest to average daily trading volume creates this set-up with fewer market making liquidity providers vs. grain or energy markets where realized price volatility and speculation embedded volatility leverage is lower.     

 

------ 

 

We hosted a call with renowned coffee specialist Judy Ganes, founder and CEO of J. Ganes Consulting service for agricultural softs. A link to the replay of that call is included below:

 

Coffee Outlook in 2015 and Beyond

 

The takeaway was that regardless of how the weather turns on the margin during the harvesting period in OCT-DEC, irreversible damage is much more threatening than consensus expectations:

  • For the first time we are looking at a two-year production deficit vs. a normalized year-on, year-off production cycle:
    • Late winter frost last year: Brazilian November-December mild frost lowered crop quality
    • Severe Drought: Drought and lack of moisture in tree root system from January-March during the vegetative period
    • Heavy Rainfall: Late timing of heavy rainfall knocked flowers off trees, reducing the available volume for harvest (CURRENT CATALYST)
    • Brazil WILL NOT produce enough volume in 2015-2016 to meet the global market demand for Arabica coffee
    • Aggregate demand next year is expected to be around 34 million bags. However due to a current stock deficit and severe crop damage, Brazil’s production yield will be just 27 million bags in 2015
    • Not enough capacity from other countries to cover the expected crop shortage of premium Arabica coffee in Brazil
    • How High Can Prices Go? $2.75-$4.00/LB. There will likely be a spike in prices for Arabica and a higher basis for other grades of coffee.

See the following links for our restaurants team’s bearish thesis on Starbuck’s which will be supported by a worse than expected Brazilian crop:

 

SBUX Best Ideas: Short Call

 

New Best Idea: Short SBUX   

 

 

Ben Ryan

Analyst

 


Cartoon of the Day: Over Fed

Cartoon of the Day: Over Fed - Fed cartoon 10.24.2014

 

Our unelected central planners just can’t seem to get enough quantitative easing (QE).

 

subscribe to cartoon of the day


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Invite | Ebola Forecasting & Containment Call with Dr. Jeffrey Shaman

Invite | Ebola Forecasting & Containment Call with Dr. Jeffrey Shaman - 1

 

Hedgeye will be hosting a specialist call with Dr. Jeffrey Shaman on Tuesday, October 28th at 1:00pm EDT to learn more about  the real and perceived risks of the current ebola virus situation.

 

Dr. Shaman will provide his informed perspective to better understand recent developments, including the global response in Africa, the handling of confirmed cases in the U.S., as well as what we should expect in the immediate future.

 

We will discuss Dr. Shaman's research on forecasting and containment of the ongoing ebola outbreak in Africa, the probability of a significant outbreak outside of Africa, and the timeline for bringing the disease under control, which Dr. Shaman estimates will take another 12 to 18 months.   

 

 

CALL DETAILS

  • Date/TIme: Tuesday, October 28th 1:00pm EDT
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 651216#
  • Materials: CLICK HERE

 

ABOUT JEFFREY SHARMAN, PhD

Dr.Shaman is an Associate Professor in the Department of Environmental Health Sciences, a junior faculty fellow of the Earth Institute, a faculty fellow of the Institute for Social and Economic Research and Policy, and a member of the Center for Environmental Health in Northern Manhattan. He is also affiliated with the International Research Institute for Climate and Society.  Dr.Shaman received a BA in biology from the University of Pennsylvania,and an MA,M.Ph.and PhD in climate science from Columbia University.  He was a NOAA post-­-doctoral fellow in climate and global change at Harvard University.

 

His research interests include: infectious disease, vector and pathogen ecology, health in the indoor and built environment,large-­-scale climate dynamics,the hydrologic cycle, and climate and disease forecast. Much of his present research focuses on developing model-­-inference systems for the forecast of infectious diseases, including influenza, West Nile virus and Ebola. 

 


Invite | Ebola Forecasting & Containment Call with Dr. Jeffrey Shaman

Invite | Ebola Forecasting & Containment Call with Dr. Jeffrey Shaman - 1

 

Hedgeye will be hosting a specialist call with Dr. Jeffrey Shaman on Tuesday, October 28th at 1:00pm EDT to learn more about  the real and perceived risks of the current ebola virus situation.

 

Dr. Shaman will provide his informed perspective to better understand recent developments, including the global response in Africa, the handling of confirmed cases in the U.S., as well as what we should expect in the immediate future.

 

We will discuss Dr. Shaman's research on forecasting and containment of the ongoing ebola outbreak in Africa, the probability of a significant outbreak outside of Africa, and the timeline for bringing the disease under control, which Dr. Shaman estimates will take another 12 to 18 months.   

 

 

CALL DETAILS

  • Date/TIme: Tuesday, October 28th 1:00pm EDT
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 651216#
  • Materials: CLICK HERE

 

ABOUT JEFFREY SHARMAN, PhD

Dr.Shaman is an Associate Professor in the Department of Environmental Health Sciences, a junior faculty fellow of the Earth Institute, a faculty fellow of the Institute for Social and Economic Research and Policy, and a member of the Center for Environmental Health in Northern Manhattan. He is also affiliated with the International Research Institute for Climate and Society.  Dr.Shaman received a BA in biology from the University of Pennsylvania,and an MA,M.Ph.and PhD in climate science from Columbia University.  He was a NOAA post-­-doctoral fellow in climate and global change at Harvard University.

 

His research interests include: infectious disease, vector and pathogen ecology, health in the indoor and built environment,large-­-scale climate dynamics,the hydrologic cycle, and climate and disease forecast. Much of his present research focuses on developing model-­-inference systems for the forecast of infectious diseases, including influenza, West Nile virus and Ebola. 


**NEW Materials Link: YELP Flash Call

 

Participant Dialing Instructions

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 349752#
  • Materials: CLICK HERE

**NEW Materials Link: YELP Flash Call - HE IM YELP death

 

Hedgeye's Internet & Media Team, led by Sector Head Hesham Shaaban, will be hosting an update call to their SHORT Yelp (YELP) Best Idea.  YELP's business model is broken; we're already seeing signs of deterioration, which will only get worse in 2015.

    

Join us as we update our bearish thesis and why we see an additional 30%+ downside from here today Friday, October 24th at 1:00pm EDT.

 

 

KEY TOPICS WILL INCLUDE  

  • Extreme Attrition Rate: It will only get worse from here
  • Insufficient TAM: YP.com is not the low-hanging fruit, it's a pipe dream
  • 2015 Will Be Much Worse: Consensus estimates are unattainable

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