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Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    

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1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.

  • The SUGAR, SILVER, and COFFEE markets experienced the most BULLISH relative positioning changes week-over-week
  • The ORANGE JUICE, SOYBEANS, and WHEAT markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 sentiment

 

2.       Spot – Second Month Spread: Measures the market expectation for forward looking prices in the near-term.

  • The LEAN HOGS, BRENT CRUDE OIL, and RBOB GASOLINE markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, LIVE CATTLE, and ORANGE JUICE markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis

 

3.       Spot – 1 Year Spread: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The BRENT CRUDE, WTI CRUDE, and NATURAL GAS markets are positioned for HIGHER PRICES in 1-year  
  • The LIVE CATTLE, COCOA, and LEAN HOGS markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1 year basis

 

4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.

 

Commodities Weekly Sentiment Tracker - chart4 open interest

 

Ben Ryan

Analyst


ADDING PENN LONG TO HEDGEYE BEST IDEAS

Takeaway: PENN should post strong Q4 earnings and we see the momentum continuing in Q1. 2015 growth opportunities are becoming more visible.

We're adding PENN as a long to the Hedgeye Best Ideas list in conjunction with our "REGIONAL GAMING MOMENTUM TO CONTINUE" note published today.


Plenty To Do In Global Macro

Client Talking Points

EURO

The Euro stops going down at the low end of our $1.15-1.19 immediate-term risk range as the entire world preps for (and in some cases begs for) Mario Draghi to deliver the central planning drugs. Since European equity markets are mostly at the top-end of our risk ranges, we’ll say the risk there is once again to the downside on a continued EUR/USD bounce.

 

GOLD

If there’s one thing that Gold loves its Dollar Down, Rates Down (and you’re getting both this morning with the UST 10YR -4 basis points to 1.80% and EUR/USD basing); so after a big +5% week, Gold rips another +1.3% putting it back into bullish TREND position @Hedgeye ahead of ECB Thursday.

S&P 500

U.S. equity beta down for 3 straight weeks (-3.5% correction from the no-volume all-time DEC year end highs) and is sitting right on our TREND signal line of 2019 right now with an immediate-term risk range of 1984-2037. Great macro markets to be trading, both ways right now.

Asset Allocation

CASH 53% US EQUITIES 6%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 7%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.

TLT

As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.

HOLX

Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

 

Three for the Road

TWEET OF THE DAY

TREASURIES: nice start to the wk for Long Bond Bulls, 10yr = 1.80% = -37bps YTD (thats already -12%) $TLT

@KeithMcCullough

QUOTE OF THE DAY

When change is necessary, not to change is destructive.

-A. R. Bernard

 

STAT OF THE DAY

S&P 500 (Index + Emini) = +110,971 net LONG position (-59,269 last week but up big vs. the 1 year average of -11,681). S&P 500 (SPX) had its highest net LONG position since 2007 only 2 weeks ago at +170,240.


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CHART OF THE DAY: What Matters Most: Gas Prices, Jobs, or Demographics?

CHART OF THE DAY: What Matters Most: Gas Prices, Jobs, or Demographics? - 01.20.15 Chart

 

*  *  *  *  *  *  * 

Editor's note: This is a brief excerpt from Hedgeye CEO Keith McCullough's Morning Newsletter

 

Interestingly, but not surprisingly, Life-Cycle Economics was one of the most talked about macro topics when Darius Dale and I were on the road seeing Institutional Investors in NYC last week where I’d ask everyone the question we have on slide 22 of our Q1 Macro Themes Deck: “What Matters Most: Gas Prices, Jobs, or Demographics?”

 

While many like to call themselves “long-term investors”, when it comes to answering the question in our Chart of The Day thoroughly, I think you should call yourselves multi-duration, multi-factor, risk managers. That’s my new marketing pitch!

 

Here’s one way to think about all 3 factors, across durations:

 

  1. GAS PRICES – immediate-to-intermediate-term (bullish TRADE and TREND duration impact to consumers)
  2. JOBS – intermediate-term (making a bearish turn? The cycle tends to be less lumpy and cyclical, or TRENDING)
  3. DEMOGRAPHICS – long-term (what was a long-term tailwind in the USA, Japan, and Europe is now a headwind)



Predicting Age

“People do predictable things as they age.”

-Harry Dent

 

People also do unpredictable things. Give them more than a few cocktails and you’ll see that prediction in motion! While simple, the aforementioned quote is true too. It comes from a macro research book I just finished reviewing called The Demographic Cliff:

 

“The average family borrows the most when parents are age 41, typically the time of their largest home purchase. They spend the most at age 46, although more affluent households reach that peak later… People save the most at age 54 and have their highest net worth at age 64…” (pg 11). These are obviously generalizations, but they are about the most important spending generation in American #history (Baby Boomers).  

 

Interestingly, but not surprisingly, Life-Cycle Economics was one of the most talked about macro topics when Darius Dale and I were on the road seeing Institutional Investors in NYC last week where I’d ask everyone the question we have on slide 22 of our Q1 Macro Themes Deck: “What Matters Most: Gas Prices, Jobs, or Demographics?”

 

Predicting Age - 90

 

Back to the Global Macro Grind

 

While many like to call themselves “long-term investors”, when it comes to answering the question in our Chart of The Day thoroughly, I think you should call yourselves multi-duration, multi-factor, risk managers. That’s my new marketing pitch!

 

Here’s one way to think about all 3 factors, across durations:

 

  1. GAS PRICES – immediate-to-intermediate-term (bullish TRADE and TREND duration impact to consumers)
  2. JOBS – intermediate-term (making a bearish turn? The cycle tends to be less lumpy and cyclical, or TRENDING)
  3. DEMOGRAPHICS – long-term (what was a long-term tailwind in the USA, Japan, and Europe is now a headwind)

 

Yep, after a long weekend, that’s a lot to think about – and I’m thinking that the immediate-term positioning of Consensus Macro futures/options in both the Spooz and Long Bond doesn’t quite agree with me yet on JOBS and DEMOGRAPHICS:

 

  1. SP500 (Index + Emini) = +110,971 net LONG position (-59,269 last wk but up big vs the 1yr avg of -11,681)
  2. US 10yr Treasury = -(187,997) net SHORT position (+62,166 last wk but a lot shorter than 1yr avg of -62,100)
  3. Crude Oil = +326,134 net LONG position (+11,230 last wk vs. 1yr avg of +368,447 net LONG contracts)

 

What consensus continues to think about is perpetually being long Macro Style Factors (growth and inflation) that have worked in the past. This implies nothing but volatility around these changing expectations in the future.

 

Let’s go through these (SPX, 10yr, Oil) one by one. First on US equity beta (SPX):

 

  1. SP500 (SPX) had its highest net LONG position since 2007 only 2 weeks ago at +170,240
  2. But the SPX didn’t pay the bulls, closing down for the 3rd straight week last week during its -3.5% correction
  3. Within the SP500’s -1.9% YTD return, the Top 2 Sectors are #GrowthSlowing + #Deflation winners
  4. Top 3 YTD = Utilities +2.6% last wk to +3.0% YTD, Healthcare (XLV) +2.9% YTD, Consumer Staples (XLP) +1.6% YTD
  5. Bottom 3 YTD = Financials -2.6% last wk to -5.0% YTD, Energy (XLE) -5.0% YTD, Consumer Discretionary (XLY) -3.4% YTD

 

Then on the best way to be long our global #GrowthSlowing + #Deflation view:

 

  1. UST 10yr Yield was down another -11bps last week to -33bps (-15% YTD) to 1.84%
  2. Yield Spread (10yr minus 2yr) was down another -3bps last wk to -15bps YTD
  3. Long-term Treasury (TLT) is already smoking everything US stocks at +6% YTD (pre-int payments!)

 

Finally, on the beloved Oil “space”:

 

  1. WTI Crude has its 1st up week in the last 8, closing up a whopping +0.7% last week
  2. WTI Crude has already given up another -3.1% to start this week and is already -11.4% YTD
  3. Whoever bought me the falling steak knives catching set for my birthday isn’t invited to next year’s party

 

In other words, you and I are having a great time to start 2015. Consensus Macro is not. And that’s mainly because consensus does predictable things as a global growth, inflation, and demographic cycle ages past a long-term cyclical peak.

 

Before I leave the keyboard this morning, here are some other big movers in Global Macro from last week that you need to keep front and center ahead of the BOJ and ECB central planning decisions this week:

 

  1. The Euro (vs. USD) was -2.3% last wk and signaled immediate-term TRADE oversold at $1.15
  2. Gold ripped +5% last week and is showing follow-through, up another +1.3% this a.m. to $1291
  3. Dr. Copper got blasted for another -5% #deflation last week and is down again this morning to $2.56

 

Of all that, what matters most?

 

All of it does. It’s interconnected. And I think it’s suggesting that Mario Draghi might not be able to deliver the Policy To Inflate drugs that central planning fans are begging for on Thursday.

 

Any short-term bottom in Euros = Down Dollar (from overbought highs) – and Gold loves nothing more than Down Dollar + Down Rates, at the same time.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.76-1.90%

SPX 1
USD 91.94-93.11

EUR/USD 1.15-1.19

Gold 1

Copper 2.48-2.65

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Predicting Age - 01.20.15 Chart


REMOVING PNK SHORT FROM BEST IDEAS

Takeaway: PNK should handily beat Q4 Street estimates and 2015 is off to a strong start in the regional gaming markets.

In line with our positive regional gaming call today:  "REGIONAL GAMING MOMENTUM TO CONTINUE", we are removing the PNK short from the Hedgeye Best Ideas List.


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