Takeaway: Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.
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.
No Russell Muscle
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).
Economic growth is slowing around the world.
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.
Don't Be Intimidated
As Target today announces free shipping for all online orders, we wanted to ask you about your shopping plans this holiday season.
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.
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:
FOLLOW THE SIGNALS:
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.
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):
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
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:
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:
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:
Our unelected central planners just can’t seem to get enough quantitative easing (QE).
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.
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.
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