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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – November 25, 2014


As we look at today's setup for the S&P 500, the range is 54 points or 2.48% downside to 2018 and 0.13% upside to 2072.                                                                       

                                                        

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.81 from 1.81
  • VIX closed at 12.62 1 day percent change of -2.17%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: GDP, 3Q, est. 3.3% (prior 3.5%)
  • 8:55am: Redbook weekly sales
  • 9am: FHFA House Price Index, Sept., est. 0.4% (prior 0.5%)
  • 9am: S&P/Case-Shiller 20 City Comp y/y Sept, est. 4.6% (prior 5.6%)
  • 10am: Consumer Confidence Index, Nov., est. 96.0 (prior 94.5)
  • 10am: Richmond Fed Mfg Index, Nov., est. 16 (prior 20)
  • 11:30am: U.S. to sell $13b 2Y FRN in reopening, $40b 4W bills
  • 1pm: U.S. to sell $35b 5Y notes
  • 4:30pm: API weekly oil inventories

 

GOVERNMENT:

    • House, Senate out of session
    • Obama travels to Chicago to talk with community leaders
    • 10am: FDIC Chairman Martin Gruenberg holds briefing on bank, thrift industry earnings for Q3 of 2014, followed by Q&A

 

WHAT TO WATCH:

  • Ferguson Explodes in Protests After Officer Avoids Charges
  • Honda May Face Record Fine for Underreporting U.S. Claims
  • Bayer Said to Weigh Diabetes Unit Sale for Up to $2.5 Billion
  • Lew Says Tax-Break Extension Plan in Congress Is Irresponsible
  • Caesars Lenders Said to Agree on Making Unit a Real Estate Firm
  • Glencore-Rio Merger Will Happen, Banker Hannam Tells Funds
  • FDA to Release More Labeling Rules on Calorie Counts
  • Universal Pictures Picks Up Steve Jobs Film Project From Sony
  • CME’s Market Surveillance Found Lacking by Its Chief Regulator
  • ‘Frozen’ Overtakes Barbie as Holiday Season’s Most Popular Toy
  • U.S. Prosecutors to Interview London FX Traders: Reuters
  • Wal-Mart Chief Merchandising Officer Set to Leave, WSJ Reports

 

AM EARNS:

    • Alimentation Couche-Tard (ATD/B CN) 8:42am, $0.56 - Preview
    • Beacon Roofing (BECN) 8am, $0.61
    • Brown Shoe (BWS) 7am, $0.68
    • Campbell Soup (CPB) 7:15am, $0.72 - Preview
    • Chico’s (CHS) 7:31am, $0.17
    • Cracker Barrel (CBRL) 7am, $1.29
    • DSW (DSW) 7am, $0.52
    • Eaton Vance (EV) 9am, $0.64
    • Hormel (HRL) 6:30am, $0.64
    • Movado (MOV) 7am, $0.86
    • Pall (PLL) 7am, $0.80
    • Signet Jewelers (SIG) 7am, $0.18
    • Tech Data (TECD) 6am, $1.02
    • Tiffany (TIF) 7am, $0.77 - Preview
    • Valspar (VAL) 7:30am, $1.15
    • Yingli Green Energy (YGE) 7am, ($0.14)

 

PM EARNS:

    • Analog Devices (ADI) 4pm, $0.68
    • Cubic (CUB) 4pm, $1.14
    • Hewlett-Packard (HPQ) 4:04pm, $1.06 - Preview
    • Infoblox (BLOX) 4:05pm, $0.02
    • Nimble Storage (NMBL) 4:01pm, ($0.16)
    • Perfect World (PWRD) 5pm, $2.77
    • TiVo (TIVO) 4:15pm, $0.07
    • Veeva Systems (VEEV) 4:02pm, $0.08

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Talk of Russian Oil Cuts to Help OPEC Likely to Stay Just That
  • Brent Crude Gains on Speculation of OPEC Output Cut; WTI Rises
  • Oil Boom Triggering Cowboy Shortage Across Canada: Commodities
  • China’s Gold Imports Rise for a Third Month on Jewelry Sales
  • Codelco Said to Trim 2015 Copper Premium to Japan Buyers by 2.5%
  • Iron Ore Drops Below $70 for First Time Since ’09 as Glut Widens
  • Palm Oil Exports From Indonesia Seen Dropping From Six-Year High
  • OPEC Said to Mull Sparing Iraq, Iran and Libya From Oil Cuts
  • Steel Rebar Rises From Record Low on Restocking Demand Optimism
  • Soybeans Rebound on Signs of Rising Demand for Record U.S. Crop
  • China Cotton Imports in 2014-15 Seen at 1.3M Tons, Butler Says
  • Venezuela Turmoil Signals End of Oil-for-Jeans Giveaway: Energy
  • EU Parliament Unlikely to Propose Early Carbon Reserve: Sikorski
  • Plunging Cotton Prices Spurring Farmers to Reduce Planting

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 


The Battlefield's Vortex

This note was originally published at 8am on November 11, 2014 for Hedgeye subscribers.

“Where is the battlefield? The answer would be, everywhere.”

-Colonel Qiao Liang

 

That was a quote from the People’s Liberation Army in China in 1999 that Jim Rickards cited at the beginning of a chapter titled The War God’s Face (The Death of Money, pg 42).

 

Since today is one of the most important days of the year to show our gratitude and respect (Veterans Day in the US, Remembrance Day in Canada, Armistice Day across Europe), I’d like to take a minute to do that this morning.

 

While the battlefield of economic and market risks continue to mount, we should never forget the sacred one where our bravest countrymen have fought for our liberty and freedom.

 

The Battlefield's Vortex - v4

 

Back to the Global Macro Grind

 

In the last few weeks I have been meeting with Institutional Investors in New York, Boston, Los Angeles, San Francisco, and Chicago. I need to get out of the Windy City this morning before this polar vortex thing rolls in!

 

The definition of a vortex: “a mass of whirling fluid or air.” That sounds like the feedback I’ve been getting on the bull case for US and global growth – oh, and the “it’s different this time” short covering we have seen in the US stock market in the last month.

 

But what happens after the vortex? Will there be massive volume buying at the all-time #bubble highs again, or not? How can we measure and monitor that? And what if all that comes after the v-bottom-vortex is crickets?

 

Crickets in the snow?

 

Yep. Anything can happen! Today the bond market is closed, so you’ll definitely hear crickets there. But you could also hear them in yesterday’s US stock market trading too. Here’s what happened in terms of Total Equity Market Volume (including dark pool):

 

  1. Volume was down -8% versus its 1-month average volume
  2. Volume was down -25% versus its YTD average volume

 

This is almost exactly what happened at the end of September (before the -10% drop in the SP500) when I’d write to you about explicit risk signals like decelerating-volume-on-up-days, and how big domestic #GrowthSlowing signals (like the Russell 2000 and UST 10yr Yields making lower-highs) were confirming that an immediate-term topping process was in motion.

 

While many still use point-and-click simple (one factor) moving averages to calibrate what they think is market risk (it’s above the 50-day bro, chart looks sweet!), the core Hedgeye quantitative signal has not changed – it has 3-factors:

 

  1. PRICE
  2. VOLUME
  3. VOLATILITY

 

The reason why we consider the battlefield of risk this way is that this is where you can find the market’s internal convictions. If PRICE and VOLUME are accelerating as trending VOLATILITY is falling (like it did in 2013), I’d be all bulled up on small cap growth.

 

However, if PRICE is rising with decelerating VOLUME and trending VOLATILITY is rising, that is called a Liquidity Trap. Those are not what you want to be buying at the high end of the risk range. You should consider them wonderful selling opportunities.

 

Again, we don’t want you shorting what almost every hedge fund on the planet is using as their perceived “hedge” (the SP500). We want you to short the Russell (IWM), and buy the Long Bond (TLT) on the other side of it.

 

Price, Volume, and Volatility provide a quantitative overlay to our fundamental research process. If there’s one fundamental factor that has mattered most in my investor debates, it’s the same one that has mattered all year – growth.

 

After 65 consecutive months of a US economic expansion, is the rate of change in US growth accelerating or slowing? That’s the battlefield debate – and, if you’re in our camp, there are plenty of ways to express our US #GrowthSlowing view:

 

  1. LONG: Healthcare stocks (XLV) led yesterday’s rally, +1% on the day, to +22.3% YTD
  2. SHORT: Consumer Discretionary (XLY) and Energy (XLE) stocks (which were both down, again, yesterday)

 

That’s right. While everybody and their thesis-drifting-brother on the Old Wall is now parroting that “you buy Consumer Discretionary stocks because of down oil prices”, that’s been one of the worst sectors of the market to be long in the last week.

 

Not only was it down with Energy deflating yesterday, Consumer Discretionary (XLY) was down on the week last week too. “So”, what does that tell you about late-cycle indicators like employment (and the lack of wage growth)?

 

Prepare for slowing’s vortex. Winter is coming.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.25-2.40%

SPX 1963-2050

RUT 1135-1182

Yen 111.99-117.87

WTI Oil 75.69-79.16

Gold 1121-1201

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Battlefield's Vortex - 11.11.14 Chart


Cartoon of the Day: R-U-T

Cartoon of the Day: R-U-T - Russell 2000 cartoon 11.24.2014

 

"The Russell 2000 was flat for the third straight week last week, with pretty much everything equities going straight up," CEO Keith McCullough wrote earlier this morning. "Immediate-term risk range there is now 1153-1188 (with 1188 being intermediate-term TREND resistance).


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%

Yes, We're Sticking With Our Long-Bond Call | $TLT

Editor's note: This is an excerpt from Hedgeye morning research. For more information on how you can become a subscriber click here.

 

The 10-Year U.S Treasury note looked at last week’s trifecta of Japan/Europe/China stimulating and saw exactly what it was ... global #GrowthSlowing.

 

For the record, the U.S. ten-year treasury yield (which has been our team's top, non-consensus call this year) remains in crash mode at 2.33%. It's down -23% YTD.

 

We still like the Long Bond vs RUT short. The Russell 2000 was flat for the 3rd consecutive week last week. Pretty much everything else equities has been going straight up.

 

Yes, We're Sticking With Our Long-Bond Call | $TLT - 56

 


Macro Notebook 11/24: Draghi | UST 10YR | Russell 2000

Hedgeye Macro Analyst Ben Ryan shares the top three things in Keith's macro notebook this morning.



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