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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 SOYBEANS, COTTON, and COPPER markets experienced the most BULLISH relative positioning changes week-over-week
  • The ORANGE JUICE, SUGAR, 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 RBOB GASOLINE, LEAN HOGS, and CORN markets are positioned for HIGHER PRICES near-term
  • The LIVE CATTLE, ULSD HEATING OIL, and SUGAR markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month spread

 

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

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

Commodities Weekly Sentiment Tracker - chart3 spot 1yr spread

 

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 - char4 open interest

 

Ben Ryan

Analyst


February 9, 2015

February 9, 2015 - Slide1

 

BULLISH TRENDS

February 9, 2015 - Slide2

February 9, 2015 - Slide3

February 9, 2015 - Slide4

February 9, 2015 - Slide5

February 9, 2015 - Slide6

 

BEARISH TRENDS

February 9, 2015 - Slide7

February 9, 2015 - Slide8

February 9, 2015 - Slide9

February 9, 2015 - Slide10

February 9, 2015 - Slide11
February 9, 2015 - Slide12

February 9, 2015 - Slide13


Will The Macro Mean Revert Back to TREND?

Client Talking Points

FX

The main reason for the whip around, counter-TREND, moves in macro last week was the USD whipping around – down hard mid-week, then up on the jobs report = -0.1% on the week! The USD is down this morning as the Yen couldn’t hold its Friday losses and the Euro’s risk range has tightened up (on the low-end) to 1.12-1.15.

EUROPE

Stocks in Europe don’t like Euro up and Greece down – Greek stocks failed @Hedgeye resistance for the umpteenth time last week and are -4.6% this morning to -7.2% year-to-date; German stocks -1.9% having their biggest down day since Mario Draghi’s central planning week – does he have another one pending?

UST 10YR

It was a terrible day for our rates call on Friday, but we’ve seen plenty of rate hike head-fakes in the last year, and we’ve been paid to buy long-duration bonds on every one of them. Less terrible to see the USt 10YR drop 7 basis points this morning to 1.89%, down from 2.17% where it started 2015, and still bearish TREND yield signal.

Asset Allocation

CASH 53% US EQUITIES 6%
INTL EQUITIES 4% COMMODITIES 0%
FIXED INCOME 33% INTL CURRENCIES 4%

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

OIL: +0.4% to $51.91 w/ a wicked wide risk range of $42.89-54.02

@KeithMcCullough

QUOTE OF THE DAY

When you catch a glimpse of your potential, that’s when passion is born.

 -Zig Ziglar

STAT OF THE DAY

51% of millennials believe they will receive no benefits from Social Security, and 39% think they will get benefits at reduced levels (according to a Pew Research Center survey of 1,821 young men and women 18 to 33 years old in February 2014).


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 80.33%
  • SHORT SIGNALS 78.51%

CHART OF THE DAY: Consensus Macro Storytelling Time 10YR UST $TLT

CHART OF THE DAY: Consensus Macro Storytelling Time 10YR UST $TLT - 02.09.15 chart

 

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

 

To be balanced, the other side of the storytelling remains that US GDP growth is going to magically accelerate to +3-4% year-over-year, and that we’re going to get rainbows and puppy dogs delivered in every late-cycle employment report, throughout…

 

To a degree, Consensus Macro bets still agree with that – here’s the updated CFTC Futures/Options net positioning:

 

  1. SP500 (Index + Emini) net LONG position = +66,335 contracts (vs. the 1 yr avg of -10,119)
  2. Treasuries (10yr) net SHORT position = -145,402 contracts (vs. the 1yr avg of -65,444)
  3. Crude Oil net LONG position = +324,181 contracts (vs the 1yr avg of +365,957)

 

For 2015, unless you bought the lows, being long SP500 and commodity related beta has been painful, but consensus has worn it the whole way down inasmuch as it has suffered the under-performance pain of not being bullish on the Long Bond.

 


Storytelling Time

“Storytelling is probably the single most popular recreational activity after sex and shopping.”

-Tham Kai Meng

 

Do you agree with that? Would your grandmother? How about Wall Street?

 

Interesting questions from a book I’m reading called The Ape, the Adman, and the Astronaut, by Ogilvy & Mather’s Chief Creativity Officer who claims that “the neuroscientists are saying your grandmother may have been right all along.” (pg 11)

 

Since I got crushed on Friday thinking that the US jobs report could be bad, I’m wide open to any story you’d like to tell me this morning. While I still think interest rates are going lower – storytellers make a market, after all.

Storytelling Time - 55

 

Back to the Global Macro Grind

 

To be, or not to be crushed (by counter-TREND moves) … remains the question. With the front-runner on big macro moves (the US Dollar Index) whipping around last week (down, then up), here’s what drove macro storytellers right batty:

 

  1. USD Down – during the front-end of the week, drove Oil, Russia, and Energy Stocks Up
  2. USD Up – on Friday’s jobs report, drove Rates, Utilities, and REITS down

 

These two story lines are not one and the same thing. And to have been properly positioned for both of them (while not getting your rear-end handed to you for 3-6 months prior) was next to impossible.

 

Summarizing the Down Dollar (then up fast on Friday) week:

 

  1. The US Dollar Index finished the week -0.1% at $94.70 (still +4.9% YTD)
  2. Oil (WTI) ramped +7.2% wk-over-wk to $51.69 (still -3.7% YTD)
  3. CRB Commodities Index had its 2nd up wk in a row, +2.7% to -2.2% YTD
  4. SP500 had its 2nd up wk in the last 6, closing +3.0% to -0.2% YTD
  5. Energy Stocks (XLE) led SP500 gainers, +5.7% wk-over-wk to +0.8% YTD
  6. Utilities (XLU) led SP500 losers, -3.6% on the wk (falling to -1.4% YTD)

 

That last part (Utilities Down) all happened on Friday with the #RateRising move where:

 

  1. UST 2yr Yields ripped to +0.64% (+19 bps on the wk, but -2 bps YTD)
  2. UST 10yr Yields shot up to 1.96% (+32 bps on the wk, but -21 bps YTD)

 

And it wasn’t just Utilities that flashed an immediate-term TRADE oversold signal on that. So did REITS (VNQ) and pretty much everything that I’ve liked on the long side of Fixed Income for the last year (TLT, EDV, MUB, ZROZ, BND).

 

The MSCI REITS Index was -1.6% on the week, but is still up +4.9% YTD and my story-line is that looks a lot like the P&L of the Long Bond bull. One down week does not a new intermediate-term TREND make.

 

To be balanced, the other side of the storytelling remains that US GDP growth is going to magically accelerate to +3-4% year-over-year, and that we’re going to get rainbows and puppy dogs delivered in every late-cycle employment report, throughout…

 

To a degree, Consensus Macro bets still agree with that – here’s the updated CFTC Futures/Options net positioning:

 

  1. SP500 (Index + Emini) net LONG position = +66,335 contracts (vs. the 1 yr avg of -10,119)
  2. Treasuries (10yr) net SHORT position = -145,402 contracts (vs. the 1yr avg of -65,444)
  3. Crude Oil net LONG position = +324,181 contracts (vs the 1yr avg of +365,957)

 

For 2015, unless you bought the lows, being long SP500 and commodity related beta has been painful, but consensus has worn it the whole way down inasmuch as it has suffered the under-performance pain of not being bullish on the Long Bond.

 

But maybe the story is different this time? Could rates finally be ready to rocket to the upside? After oil and its related equities have had their counter-TREND bounce, could they continue higher and be the inflation catalyst big equity beta chasers need?

 

I don’t think so. If I did, on Friday I wouldn’t have signaled (in Real-Time Alerts) to:

 

  1. Buy Utilities (XLU)
  2. Buy Municipal Bonds (MUB)
  3. Short Banks (BAC)

 

Opportunities to go shopping for bonds and/or stocks that look like bonds have been few and far between for the last 6 weeks. So I want to signal that you take advantage of one of the two “popular recreational activities” that grandma would sign off on!

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.64-1.95%

SPX 1
VIX 15.67-21.44
USD 93.52-95.44

WTI Oil 42.89-54.02
Gold 1

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Storytelling Time - 02.09.15 chart


REGIONAL GAMING: SNOWING BUT NOT SLOWING

Takeaway: Momentum in regional gaming stocks should continue - Jan numbers coming out strong and Feb should conclude the best 3 mths stretch in 6 yrs

CALL TO ACTION

 

PENN, BYD, and PNK

The trade in regional gaming stocks still looks higher. Even after some big snowstorms, January regional revenue is on track for mid-single digit growth or better.  We’re projecting +7% same store revenue growth, best in a long time.  On top of a few more likely strong Q4 earnings releases, solid January State gaming revenue releases this week and next, and another solid month for February, recent share price momentum should be maintained by fundamental catalysts.  

 

Please see our detailed note: 

http://docs.hedgeye.com/HE_Not_Snowing_Down_2.9.15.pdf


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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