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#Bubbles: S&P Levels, Refreshed

POSITIONS: 5 LONGS, 7 SHORTS

 

One of the main reasons why I haven’t written you a “SELL (SPY) Levels” note in a while is that I wasn’t getting an immediate-term TRADE overbought signal. Now I am. Timing is part of the #process.

 

Rather than rehash my fundamental view on why the Russell 2000 (IWM) is #bubble (that already saw its 1st phase of popping during its July-Oct 15% draw-down), I think this is as good a spot as any to call the SP500 a #bubble.

 

#Bubble? Sure. What better spot to call it what it is, other than the all-time high?

 

To put the immediate-term short-covering capitulation in context, here are the levels that matter to me most:

 

  1. Immediate-term TRADE overbought = 2050
  2. Immediate-term TRADE support = 2001
  3. Intermediate-term TREND support = 1975

 

#Bubbles: S&P Levels, Refreshed - SPX Levels refreshed

 

In other words, whether you are a short or intermediate-term investor, there’s anywhere from -2.4-3.7% mean-reversion downside from 2050. Memories of the -10% draw-down (SEP to OCT) are short, so I’m thinking -3% could happen slowly, then all at once.

 

Both Volume (decelerating on UP days) and Volatility signals (my TREND signal for VIX remains bullish) within the US Equity market are more glaring now than they were at the end of September. My mistake then was not shorting SPY, and just staying with IWM.

 

To put this epic volume signal in perspective, at the all-time closing high of 2041 (SPX) yesterday, Total US Equity Market Volume crashed (down -26% and -46%, respectively, versus its 1-month and YTD averages).

 

To be balanced, if you think the word #bubble is too aggressive, just call this performance chasing level of the SP500 a Liquidity Trap.

 

KM


Keith's Macro Notebook 11/18: Yen | Europe | Russell 2000

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


EVENT: BABA: Risks & Timing, What Others Aren’t Telling You

Takeaway: We're hosting a call Friday, November 21st at 11:00am EST discussing our bearish long-term view on BABA, and timing the short opportunity.

EVENT:  BABA: Risks & Timing, What Others Aren’t Telling You - HE IM baba

We will be hosting a call outlining our long-term BEARISH view on Alibaba Group Holdings.  BABA is too large to control its own destiny, leaving it hostage to the China growth story and creating a set of challenges for its business model.

 

Moderated by Hedgeye's CEO Keith McCullough, we'll integrate a PMs perspective on risk and timing.  

    

Join us for our call Friday, November 21st at 11:00am EST.

 

 

KEY TOPICS WILL INCLUDE  

  • China Can't Grow Fast Enough: Top-down analysis of the key factors driving E-Commerce in China.
  • Growth Will Come at a Price: How the China growth story will pressure BABA's Business Model.
  • Timing the Short: Model Projections and the Key Metrics we're tracking to monitor our thesis.

 

CALL DETAILS

Ping for more information.


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COMPLIMENTARY VIDEO | Hedgeye's Morning Macro Call with CEO Keith McCullough 11/18/14

We are pleased to present this complimentary peek behind-the-macro-scenes of Hedgeye's daily Morning Macro Call for institutional subscribers. 

 

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Click here to subscribe to HedgeyeTV on YouTube. It takes one second (and it's free!). Don't miss any of our acclaimed content including our analysts' latest ideas and CEO Keith McCullough's 'Real Conversations' interviews with leading market and economic practitioners.

 


MACAU: BACK ON THE [WRONG] TRACK

Takeaway: November takes a turn for the worse portending a December disaster. Hedgeye forward estimates remain well below Street

Analysis of November trends/takeaways and an update to our monthly forecast

 

 

Please see our note:   http://docs.hedgeye.com/HE_Macau_11.18.14.pdf


Yen, Europe and The Russell 2000

Client Talking Points

YEN

Burning Yens move back to $116.67 on Abe promising to do what the country can’t afford (delaying consumption tax for political points) and going for the snapper election on DEC 14th – what happens to this global carry trading thing if he loses? Yen (vs. USD) testing the low-end of its 114.04-116.97 risk range #volatility pending!

EUROPE

It’s not clear how many more selling opportunities they are going to give us in French and Italian equities, but this is just one more bounce to lower-highs that we’d look to sell into on a newsy morning about “German recovery” – GDP comps for Europe are tough for the next 3 quarters.

RUSSELL 2000

The Russell 2000 is down -1.9% in the last 3 days, but the world’s consensus hedge (SPY) isn’t down (yet), so no worries. From both a liquidity and volume perspective, this is a rewind of the movie you saw in late SEP (decelerating volume on UP days for SPX). Total U.S. Equity market volume was -26% vs. its 1month average yesterday.

Asset Allocation

CASH 67% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.

 

TLT

We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).

XLP

The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road

TWEET OF THE DAY

CFTC (non-commercial) net SHORT position in the Euro at YTD highs of -162,216 contracts #massive

@KeithMcCullough

QUOTE OF THE DAY

If you would be wealthy, think of saving as well as getting.

-Benjamin Franklin

STAT OF THE DAY

A group of Walmart employees pushing for higher wages are planning protests at 1,600 Walmart stores nationwide on Black Friday, the biggest shopping day of the year in the United States.


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