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Takeaway: The current degree of momentum deterioration at the single stock level is well shy of the OCT '07 bull-market top, implying further upside.


Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. Consumer Staples Select Sector SPDR Fund (XLP)
  3. Health Care Select Sector SPDR Fund (XLV)
  4. Vanguard Extended Duration Treasury ETF (EDV)
  5. iShares 20+ Year Treasury Bond ETF (TLT)

Short Ideas/Underweight Recommendations

  1. iShares Russell 2000 ETF (IWM)
  2. SPDR S&P Regional Banking ETF (KRE)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)



More Upside for the S&P 500?: One of the conventional “isms” of stock market analysis is that benchmark indices tend to peak well after broad-based signs of deterioration have emerged “underneath the hood”, so to speak.


There’s a number of ways to measure market breadth on a trending basis (e.g. % of stocks making new highs, % of stocks correcting, % of stocks crashing, etc.), but we thought we’d focus on a very simple measure(s) in order to hone in on where we might be in the context of the U.S. stock market cycle. Such honing in is especially critical in the context of what some have termed the “7-year itch”: 2000 bull-market top => 2007 bull-market top => 2014 bull-market top?


In the charts below, we show the percentage of Russell 3000 constituent stocks that were below their respective 50-day and 200-day moving averages at critical closing price highs in the S&P 500 since mid-2007, ultimately comparing recent peaks with what we have seen historically. Obviously simple moving averages are what they are – i.e. simple – but to the extent we're only using them to measure momentum and NOT to manage risk, we think they are an appropriate measure for our study.


The key takeaway is that the current degree of momentum deterioration at the single stock level is well shy of the October 2007 bull-market top, which would tend to support any belief that this current bull market has further upside. How much upside is a conclusion we unfortunately cannot draw from this (or any other) analysis, but at the very least it remains directionally bullish – for now.


July 19, 2007 peak:  a considerable degree of negative momentum, with just shy of half of all stocks below their 50DMAs:




October 9, 2007 peak: a substantial degree of negative momentum, with over half of all stocks below their 50DMAs and nearly 60% of stocks below their 200DMAs:




April 23, 2010 peak: a substantial degree of positive momentum, with the overwhelming majority of stocks above their 50DMAs and 200DMAs:




April 29, 2011 peak: a substantial degree of positive momentum, with the overwhelming majority of stocks above their 50DMAs and 200DMAs:




April 2, 2012 peak: a substantial degree of positive momentum, with the overwhelming majority of stocks above their 50DMAs and 200DMAs:




September 14, 2012 peak: a substantial degree of positive momentum, with the overwhelming majority of stocks above their 50DMAs and 200DMAs:




September 18, 2014 peak: a considerable degree of negative momentum, with just shy of half of all stocks below their 50DMAs and 200DMAs:




December 5, 2014 peak: a noteworthy degree of negative momentum, with nearly 40% of all stocks below their 200DMAs:




Last price: a noteworthy degree of negative momentum, with nearly 40% of all stocks below their 200DMAs:




Again, this analysis does not imply a considerable degree of further upside for the SPX; nor does it imply that we are now broadly bullish on the U.S. equity market.


That being said, we remain bullish on the sectors and style factors that have tended to outperform in historical instances of #Quad4 (i.e. healthcare, consumer staples, utilities, REITs and mega-caps) and this analysis would support an expectation of positive absolute returns for those exposures from here to the extent that market beta remains positive.


On that note, Keith's immediate-term risk range for the SPX currently has upside to 2090 and the index remains bullish TREND and TAIL as well. Given the current "poor, but not terrible" state of trending market breadth, one could argue that we need to see a substantial degree of deterioration at the single stock level over the next ~20 point rally for any price near 2090 to be the ultimate crescendo of this raging bull market.




***CLICK HERE to download the full TACRM presentation.***



#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.


Does Your View on Rates Include the Risk of a “Reflexive Deflationary Spiral”? (12/19)


#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.


Moscow, We Have a Problem (12/16)


#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.


#Bubbles: “Hedge Fund Hotel” Edition (Part II) (12/8)


Best of luck out there,




Darius Dale

Associate: Macro Team


About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.

Monday Mashup: BOBE, RT and More

Monday Mashup: BOBE, RT and More - 1


Recent Notes

12/15/14 Monday Mashup: DRI, BLMN and More

12/17/14 DRI: Expectations for a Recovery are Premature

12/18/14 Call Invite | Statement Analysis - Putting Companies Through a Linguistic Polygraph Test

12/18/14 DNKN Debacle & Parallels to SBUX


Events This Week

Tuesday, December 23rd

  • Hedgeye Call with Mark McClish at 11am EST (Putting Companies Through a Linguistic Polygraph Test)


Chart of the Day

Monday Mashup: BOBE, RT and More - 2


Recent News Flow

Monday, December 15th

  • BOBE announced CEO Steve Davis has stepped down by mutual agreement with the board, effective immediately.  The board has established an interim office of the chief executive (CFO Mark Hood, BEF President Mike Townsley) to provide ongoing leadership and oversight while they search for a new CEO.
  • DRI was upgraded to market perform from underperform at Telsey Advisory Group with a $54 PT.
  • COSI announced completion of its previously announced rights offering.  Cosi anticipates issuing 13.3 million common shares for gross proceeds of $20 million.

Tuesday, December 16th

  • RT preannounced same-restaurant sales and traffic declines of -1% and -1.3%, respectively.  This compares to same-restaurant sales guidance provided in early October of up +1-2% for the second fiscal quarter.  RT is scheduled to release full second quarter earnings on January 8, 2015.

Wednesday, December 17th

  • PBPB announced it has signed an agreement with a franchisee to develop Potbelly shops in London.  The company expects the franchisee to open 10 Potbelly shops in London over the next five years.
  • KKD announced Jim Morgan will transition from Executive Chairman of the Board to non-executive Chairman of the board, effective January 29, 2015.
  • WEN announced several changes to executive assignments among members of the current Senior Leadership Team that are designed to drive growth and restaurant development for the company.  You can read more about the changes here.
  • QSR announced the appointment of executive officers of Tim Hortons.  Elias Diaz-Sese, former president of BK AsiaPac, was appointed President, Tim Hortons.  Jill Granat, former Senior Vice President, General Counsel, and Secretary of Burger King Worldwide, was appointed General Counsel and Corporate Secretary, Tim Hortons.
  • LOCO celebrated the opening of its newest location at Copperfield in Houston, TX.

Thursday, December 18th

  • DNKN offered up disappointing guidance for both 4Q14 and FY15.  It expects Dunkin’ Donuts U.S. full-year same-store sales growth to be approximately +1.4% in 2014, below the current +1.8% consensus estimate.  This guidance implies that 4Q same-store sales are running in the +0.5-0.8% range, well below the current +2.2% consensus estimate.  In 2015, the company expects to deliver full-year same-store sales growth of +1-3% in the U.S and adjusted EPS of $1.88-1.91 (current consensus estimate is $2.02).
  • COSI holder AB Value Management filed to sell its total stake, 550K shares, through BTIG.  The transaction is expected to occur by December 30th.


Sector Performance

The SPX (+3.4%) outperformed the XLY (+1.2%) last week, as both casual dining and quick service stocks, in aggregate, underperformed the XLY Index.

Monday Mashup: BOBE, RT and More - 3

Monday Mashup: BOBE, RT and More - 4


XLY Quantitative Setup

The XLY continues to be bullish on an intermediate-term TREND duration.

Monday Mashup: BOBE, RT and More - 5


Casual Dining Restaurants

Monday Mashup: BOBE, RT and More - 6

Monday Mashup: BOBE, RT and More - 7


Quick Service Restaurants

Monday Mashup: BOBE, RT and More - 8

Monday Mashup: BOBE, RT and More - 9


Howard Penney

Managing Director


Fred Masotta


December 22, 2014

December 22, 2014 - Slide1



December 22, 2014 - Slide2

December 22, 2014 - Slide3

December 22, 2014 - Slide4

December 22, 2014 - Slide5




December 22, 2014 - Slide6

December 22, 2014 - Slide7

December 22, 2014 - Slide8

December 22, 2014 - Slide9

December 22, 2014 - Slide10

December 22, 2014 - Slide11
December 22, 2014 - Slide12

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 80.51%
  • SHORT SIGNALS 78.32%

Yen, Russia and Sentiment

Client Talking Points


Selling Burning Yens (on the bounce) vs. ramping U.S. Dollars made sense again last week. The Yen is down another -0.3% to $119.81 with no immediate-term support to $120.63 (still bullish for Nikkei, which was +0.1% overnight and is closed tomorrow), this is also bearish for Oil on the bounce (Dollar Up).


Things that crash…bounce. The RTSI is +4.2% this morning after being up big on Friday, but still -42% year-to-date (which means only +72%, from here, to get whoever owned it up there back to breakeven!); massive resistance for the Russian Trading System in the 885-912 range (no support to 623).


Someone definitely didn’t want the S&P 500 to fall into year end; massive ramp in SPX (Index + Emini) futures/options of +104,196 contracts last week, putting the net LONG position at +153,107 contracts (vs. the 3 month average of +19,661 and easily the biggest net long position of the year).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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).


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


OIL: #deflation of -4.6% since June (needs to be +82%, from here, to get back to that breakeven) #DrawDownMath



Practice isn't the thing you do once you're good. It's the thing you do that makes you good.

-Malcolm Gladwell


Today, UPS will deliver 34 million packages, more than any other in its history.

CHART OF THE DAY: Consensus Macro Positioning $SPX $TLT

CHART OF THE DAY: Consensus Macro Positioning $SPX $TLT - 12.22.14 EL Chart


"I’ve used the net long/short positions of CFTC Non-Commercial positioning as a contrarian Global Macro indicator for years," wrote CEO Keith McCullough in today's Morning Newsletter.

Wow, Again!

“Wow, I get to wake up again?”

-Dave Grohl


The former drummer of Nirvana went on to say, “you have to make good with what you’ve got.” And that he did. After Kurt Cobain’s death in 1994, Dave Grohl went on to successfully found the Foo Fighters in Seattle, Washington.


These were the bad boy bands that I grew up listening to in college. I even had the Cobain flow, earrings, and yes, much to my Dad’s chagrin, tattoo. But don’t tell anyone. I have such a politically correct image to uphold!


One of my favorite Foo Fighters tunes was one that Grohl wrote called Monkey Wrench (1997). For bears, in US equity market terms, there’s this thing called year-end that is something similar to that. And wow, did they just ramp it again!


Wow, Again! - d5


Back to the Global Macro Grind…


After going straight down for the 1st two weeks of December (like they did in the 1st two weeks of October), they v-bottomed the US equity futures again. And whoever “they” are – I must once again say, wow – congrats (for now).


One way to ramp the stock market is for a determined group of “they” to buy the living daylights out of SP500 futures in a compressed period of time (say, into options expiration day, for example).


When I say “ramp”, I mean ramp! Check out this ramp in the CFTC net LONG position of SP500 (Index + Emini) last week:


1. SPX net long position (futures and options contracts) was +104,196 week-over-week

2. That takes the total NET LONG positions to +153,107 contracts

3. Vs. the 3 and 6 month avg net positions of +19,661 and -10,751, respectively


#Wow, again!


Since I’ve used the net long/short positions of CFTC Non-Commercial positioning as a contrarian Global Macro indicator for years, this is easily the most interesting data point in my notebook this morning.


Especially for those of you who are uber bullish on #deflation and global #GrowthSlowing in Long Bond (TLT, EDV, etc.) terms, here’s another beauty:


1. 10yr Treasury net SHORT position climbed another -55,605 week-over-week

2. That takes the latest net SHORT position in Long-term Treasuries to a fresh YTD high of -270,383 contracts

3. Vs. the 3 and 6 months avg net short positions of -86,021 and -45,589, respectively


The only other major macro futures/options position I’d call out is that the short position in the Japanese Yen dropped 17,049 contracts to a net SHORT position of -86,805 last week (vs. the 3 and 6 month avg net short positions of -96,791 and -90,156, respectively).


In other words, if you’re fading Consensus Macro alongside us these sentiment moves mean that:


1. While we aren’t currently short SPY in Real-Time Alerts, putting that back on closer to 2090 makes sense

2. Staying with our favorite, low-volatility, absolute return Long Bond positions (TLT, EDV) definitely makes sense

3. Re-shorting Burning Yens (vs USD) on the bounce early last week is where we want to be


If you want to get right racy into year-end and buy some big central planning beta, the Weimar Nikkei is probably where the pin action is going to be at. These Japanese dudes are politically incentivized!


Unlike Asia ex-Japan (MSCI index) which was down another -1.7% last week, the Nikkei was up another +1.4% to +8.2% for 2014 YTD and has immediate-term upside to 17,921 (see our latest Japan deck for the why).


Top-down, while the agenda to mark-up US equity markets into year-end is fun to consider, it’ll be critical to monitor mounting #deflation and #GrowthSlowing risks in the global economy.


Amidst the v-bottoms, Emerging Markets did not. EM Equities (MSCI Index) fell another -0.4% last week to -6.7% YTD. Someone needs to show me some wow there soon, or I’ll just keep waking you up to what we’ve got…


And that’s both growth and inflation expectations slowing, big time.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.03-2.23%


Nikkei 17162-17921

VIX 14.34-24.16

YEN 118.42-120.63

Oil (WTI) 52.06-57.94


Best of luck out there this week,



Keith R. McCullough

Chief Executive Officer


Wow, Again! - 12.22.14 EL Chart

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