Takeaway: I'm sticking with our process. It works.
The Nikkei no likey that whole Down Dollar, Up Yen move, eh?
Japan was whacked -3.1% overnight as the Yen signaled immediate-term TRADE overbought versus the US Dollar in our model yesterday. The Yen down -0.6% now on the day should mean Nikkei up tonight.
That gives me confidence being long the S&P 500 for the first time here in 2014. (I bought it at 3:38pm ET yesterday in Real-Time Alerts.)
Another reason why I bought the S&P 500 and covered shorts into the close yesterday was VIX is under 14.91 resistance. That’s my TREND resistance line and SPX immediate-term TRADE oversold at 1817.
I'm simply sticking with our process.
Editor's note: This is a free excerpt of CEO Keith McCullough's morning research. For more information on what we offer here at Hedgeye click here.
Takeaway: We're selling MD and hoping (planning) for a chance to buy it back lower on Q413 earnings.
This note was originally published January 14, 2014 at 11:25 in Healthcare
SELLING MD: After a 21% return ,we're closing our long position in MD. We've been running a survey of OB/GYNs for several months. The survey asks specifically about deliveries and pregnancy in the prior month and the outlook for the current month, and both are weak in Q413. Delivery trends registered a reading of 45.0 in the most recent completed month and 44.0 for the trailing 3 months. A reading below 50 suggests contraction.
TOUGHEST COMPARE IN 6 YEARS: Birth comparisons are the toughest they've been in 6 years in Q413, with Q412 registering +1.6% growth. As a result, and because maternity (still) drives same store results, we believe same store volume will be down substantially more than guidance of "essentially flat" for Q413.
PARITY & DEALS: While the catalysts of pricing parity and acquisitions remain, our current view is that weaker sequential same store volume will offset any positive updates on deals or parity payments. As a reminder, MD missed their 2013 deal guidance, but calmed concerns by filing a universal shelf implying bigger deals in the future. Since then, only 1 deal has been announced and was too small to require financial disclosures.
SENTIMENT: From a factor perspective, the decline in the short interest has largely played out and is clearly no longer the positive catalyst it had been. Additionally, sellside ratings continue to fall, and based on history, does not set up well for forward returns either.
Editor's note: This was written by Tom Tobin, Healthcare Sector Head at Hedgeye Risk Management. Click here to learn more about becoming a Hedgeye subscriber.
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YUM reported December comps for its China Division yesterday after the close. KFC comps (+5%), Pizza Hut comps (-3%), and total China comps (+2%) all missed expectations. Needless to say, it was a disappointing month. KFC, although missing expectations by 100 bps, was actually quite strong. Surprisingly, the majority of weakness came from Pizza Hut which missed expectations by 870 bps. There has been wide speculation that these two chains are seeing increased competition from local dining chains.
For the quarter, 4Q China Division (includes Sept., Oct., Nov., Dec.) comps (-4%) missed consensus estimates by 100 bps. All told, it was a disappointing end to the quarter. However, as we mentioned in our note last week, December sales numbers will not make or break our bullish thesis on YUM. The company has a substantial long-term growth opportunity in China as well as in other emerging markets.
Barring a material setback in China, we continue to expect outperformance throughout 2014. In our opinion, easy same-store sales comparisons, notable margin expansion, and positive earnings momentum will lead to multiple expansion over the next several quarters. The magnitude of this outperformance will depend heavily upon the trajectory of the recovery in China.
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