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Momentum Chasers Get Pounded, says Keith McCullough

 

On today’s Morning Macro Call, Hedgeye CEO Keith McCullough emphasizes the difference between the market and the economy, explains the new setup for Gold, and takes questions from viewers. 

 

 

This is a complimentary peek behind-the-macro-scenes of our daily Morning Macro Call for institutional subscribers.


Keith's Daily Trading Ranges, Unlocked

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. It was originally published February 13, 2015 at 07:48  at 07:49. Click here to learn more and subscribe.

Keith's Daily Trading Ranges, Unlocked - Slide1

BULLISH TRENDS

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BEARISH TRENDS

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Down USD, Up Oil

Client Talking Points

USD

Down Dollar has wicked correlation whip around the world, and it’s not just taking WTI +5% in an hour – Australian stocks +2.3% overnight to +8.7% year-to-date (they also cut rates earlier in the year), Russian stocks +3.3% this morning to the top-end of their immediate-term range; CRB Index up 2x the SPX yesterday (in % terms) on the day.

OIL

WTI is up another +1.1% this morning to $51.79 (USD is down on Euro up to $1.14) and the risk ranges for both Oil and the USD are now narrowing ($47.42-53.45) so you can look at that in more ways than one. Short term-top in OVX (Oil volatility), higher-lows of support, but also lower-highs of resistance.

EUROPE

All things considered a good GDP print out of Germany of +1.6% year-over-year (vs. +1.2%) so mainstream media will roll with that today, as Italy prints a recessionary GDP of -0.3% year-over-year and France says 0.2% year-over-year (vs. 0.4% – all Q4 numbers, and the JAN economic data in Europe this morning was #deflation101 (Swiss PPI -2.7% year-over-year, Spain CPI -1.3% year-over-year).

Asset Allocation

CASH 45% US EQUITIES 9%
INTL EQUITIES 7% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 8%

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

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.

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

***Game on at 8:30am ET Hedgeye CEO @KeithMcCullough hosting Morning Macro Call LIVE (Click below. It's free) https://www.youtube.com/watch?v=lFlc01Z5qWM

@Hedgeye

QUOTE OF THE DAY

You earn your reputation by the things you do every day.

-Dave Thomas

STAT OF THE DAY

Total U.S. Equity Market Volume, including dark pool, was down -17% yesterday vs. its 1 year average.


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February 13, 2015

February 13, 2015 - Slide1

 

BULLISH TRENDS

February 13, 2015 - Slide2

February 13, 2015 - Slide3

February 13, 2015 - Slide4

February 13, 2015 - Slide5

February 13, 2015 - Slide6

 

BEARISH TRENDS

February 13, 2015 - Slide7 

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CHART OF THE DAY | PIE CHART: Current Hedgeye Asset Allocation

CHART OF THE DAY | PIE CHART: Current Hedgeye Asset Allocation - 99

 

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

 

My net asset allocation to US Equities bottomed on February 3rd at +2% (damn hedgie, I think of everything on a net longs minus shorts basis) and today it’s +9%. My max net asset allocation to any asset class is 1/3 of the total pie, and I’m close to max in Fixed Income at +31% (see pie chart).

 


Important Truths

“What important truth do very few people agree with you on?”

-Peter Thiel

 

When Thiel interviews people, he asks them that question. It’s a good one. And while he doesn’t think everyone has good answers to it, if he asked me I’d go into something he knows nothing about (like being a lifelong Toronto Maple Leafs fan!)

 

This question sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon…

 

“… and it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius.” (Zero To One)

 

Important Truths - th5

 

Back to the Global Macro Grind

 

BREAKING: US Retail Sales and Jobless Claims miss, US Stocks Rip To All-Time Highs

 

How many people agree with that summary of yesterday’s no-volume (Total US Equity Market Volume, including dark pool, -17% vs. its 1yr avg yesterday) ramp to 2088 in the SP500?

 

Follow the knuckle-puck (Peter, see the intellectual masterpiece that is Mighty Ducks 3 #brilliance):

 

  1. US Retail Sales slowed -0.8% month-over-month in JAN (after slowing -0.9% in DEC)
  2. US Jobless Claims popped back up over the important 300k line to 304,000
  3. US Treasury Yields dropped -5bps (on the 10yr from 2.03% to 1.98%) on the news
  4. US Dollar went straight down, -0.9%
  5. Oil (WTI) went straight up, +5%, and Energy Stocks (XLE) had a +1.3% day
  6. CRB Commodities Index (-0.95 correlation to USD) popped +1.9% on the day

 

Then, the counter-TREND knuckler weaved its way into the Global Macro Correlation trade:

 

  1. Australia’s stock market loved the commodity bounce, closing +2.3% leading everything in the East
  2. Russia’s stock market ramped another +3.3% on the Down Dollar, Up Oil news
  3. And the bloodied Euro is testing 3-week highs up at $1.14 vs USD

 

Is this the truth? Or is it a version of that which very few people were positioned for? If you nailed this iteration of the counter-TREND move, I sincerely salute you. Going top-shelf from the other team’s end, Mighty Ducks style, isn’t easy!

 

That last point on the Euro going up has another whole set of truths to consider this morning. There’s a boat load of European growth and inflation data on the tape:

 

  1. Germany’s Q4 GDP accelerated to +1.6% year-over-year
  2. Italy’s Q4 GDP slowed to -0.3% year-over-year #recesssion
  3. France’s Q4 GDP slowed to +0.2% y/y vs +0.4% last
  4. Swiss PPI (producer prices) deflated to new lows of -2.7% y/y in JAN
  5. Spain CPI (consumer prices) deflated -1.3% year-over-year

 

So mainstream media will focus on Germany today (the bullish news). They should because the divergence between good and bad balance sheet countries in Europe is glaring, but that doesn’t mean that Global #Deflation forces now cease to exist.

 

By the way, the truth is that if you are long the DAX you are killing it at +12% YTD. If I had to rank order which of the 3 major global equity indexes I’d buy on pullbacks from here, Germany would be in my Top 3 (so pullback already!):

 

  1. Nikkei
  2. DAX
  3. Russell 2000

 

Who, me? Buy stocks? Of course I like to buy stocks A) on pullbacks to the low-end of my immediate-term risk ranges and B) in the sub-sector style exposures of the markets that I like from a Macro Theme perspective.

 

Rank ordering the majors like that isn’t what I’m talking about – buying something that’s in our Top 3 Macro Themes for Q1 like #HousingAccelerating is. Both Housing (ITB) and Consumer Discretionary (XLY) are in our Top 5 Macro Ideas (last slide of our Macro Deck). We’ve been consistent in reiterating that.

 

My net asset allocation to US Equities bottomed on February 3rd at +2% (damn hedgie, I think of everything on a net longs minus shorts basis) and today it’s +9%. My max net asset allocation to any asset class is 1/3 of the total pie, and I’m close to max in Fixed Income at +31% (see pie chart).

 

My biggest mistake on the long side in February was staying with my biggest win from January (being long Long-term Bonds). And my biggest mistake on the short side was staying with the Financials (XLF).

 

Whether or not staying with my lower interest rate call (Long long-term Treasuries, Short Banks) is working in the moment or not, I am accountable to every day’s mistakes. That’s the truth that I built this firm on. And I think most people can agree with me on that.

 

Our immediate-term Global Macro Risk Ranges are:

 

UST 10yr Yield 1.65-2.09%
SPX 2054-2094

Nikkei 175
DAX 108

EUR/USD 1.12-1.15
Oil (WTI) 47.42-53.45

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Important Truths - 99


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