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Short interest data released yesterday, in conjunction with sell-side sentiment data, shows that for the two weeks ended 3/15 the majority of restaurant stocks have seen sentiment either improve or hold steady.  BJRI saw the greatest uptick in sentiment while DPZ, BWLD, and KKD saw the greatest declines in sentiment.


Sentiment Scorecard Callouts


MCD/YUM/SBUX: The gap that previously existed between MCD versus YUM and SBUX has closed from a sentiment perspective.  Disappointing February sales results, along with the impact of austerity on MCD’s Europe business, has brought sentiment lower recently.  We believe that Taco Bell is a key driver of improving sentiment around YUM’s stock.  Despite softness in China’s stock market during March amid growth concerns, a factor that would usually be expected to weigh on the company’s stock price, YUM’s stock has gone straight up during the past month.  SBUX continues to win in new categories and investors are heightening their expectations for what SBUX can achieve within the food and beverage industries.


DNKN: Sentiment in Dunkin’ softened in the two weeks ending 3/15.  Subsequently, we learned from a regulatory filing that 1Q trends at Dunkin’ Donuts softened sequentially from 4Q despite the weather benefit.  While we do not think that same-store sales trends are important for DNKN, given that it is a franchise business, it is important from a sentiment perspective and we expect the next sentiment reading to show a further decline in DNKN’s reading.  The backlog of new unit openings, a metric of paramount importance for investors in Dunkin’s growth story, continues to be shrouded in mystery.


BWLD: Buffalo Wild Wings’ stock continues to soar, with the exception of a minor correction today on the back of what we see as a very prescient downgrade from Deutsche Bank today.  The sell-side is becoming more bearish on it, and sell-side sentiment has been the primary driver of the reduction in the sentiment around the name over the past two months.


EAT: Investors remain skeptical on this turnaround story.  In terms of the upcoming EPS release, the question is whether or not the company was able to successfully lap the introduction of the $6.95 lunch combo in January 2011.


PFCB: P.F. Chang’s still languishes near the bottom of the list from an investor sentiment perspective but sentiment has been improving slightly recently.  Investors will be eager to learn how the Bistro’s “Triple Dragon” promotion has fared recently either during the AGM on 4/18 or during the 1Q12 EPS call on 4/27.







Howard Penney

Managing Director


Rory Green



Different This Time? SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short SPY and Industrials (XLI)


My fundamental research view that Growth Slows As Inflation Accelerates has not changed. Market prices have. This is the same fundamental Growth/Inflation model I have used to call Growth Slowing turns in 2008, 2010, and 2011.


In the attached chart you can see that A) Q1 Tops (lower long-term highs) are frequent and B) unless you truly think it’s different this time (hearing some people call it the 1990s!) both VOLUME and VOLATILITY signals here are much more bearish than the ones we were flagging in Feb-Apr of last year.


Across my core risk management durations, here are the lines that matter most: 

  1. Immediate-term TRADE overbought = 1420
  2. Immediate-term TRADE support = 1405
  3. Intermediate-term TREND support = 1312 

In other words, the top end of this very tight range has every opportunity to hold into quarter end. There’s also a rising probability of a collapse to the mean reversion level of 1312 (ie a -7.5% correction, which would be approximately only half of the lightest mean reversion we’ve seen since the May 2010 top (15% draw-down from there to Jackson Hole Bailout bottom).


When volume signals are as bad as I have ever seen, and the VIX is at 14, I don’t think the high probability outcome is going to be different this time.




Keith R. McCullough
Chief Executive Officer


Different This Time? SP500 Levels, Refreshed - SPX

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