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Consensus Corrections

This note was originally published at 8am on May 21, 2015 for Hedgeye subscribers.

“Brevity and conciseness are the parents of correction.”

-Hosea Ballou


I figured I’d use that title this morning to pad my open-rates. Bears love to read about corrections.


Correction? Looking at futures and options activity, consensus hedge fund positioning has been looking for a big correction for two weeks (i.e. they ramped the net SHORT position in the SP500 and Russell 2000 to YTD highs after the correction we had 4 weeks ago).


Short low, cover high, eh.

Consensus Corrections - Bubble bear cartoon 09.26.2014


Back to the Global Macro Grind


I’ve spent the last decade of my career analyzing relationships between price, volume, and volatility. Before that, all I’d stare at was price. For 6 long years I’d watch some of my bosses and their buddies chase price charts. Sometimes it worked; sometimes it didn’t.


Ole school money managers will recall Stan Weinstein’s technical reports and a charting program called TC 2000. While they hopefully worked for some, they didn’t work for me. So I built my own.


There’s no need to get into a fight with the point-and-click zoo-keepers of the 50 and 200 day moving monkeys today. My point on this matter is this: a market price has a tendency to put in a short term top when:


  1. Volume starts to decelerate into the final stages of the accelerating price momentum
  2. Volatility (in terms of how I calculate historical as a leading indicator) starts to signal higher-lows
  3. Price itself finally signals a series of lower-highs


That’s not the SP500, yet (it might be within another full day of fresh price, volume, volatility data today), but it is the Russell 2000. I’m not saying this is going to provide you the elixir of a “technical” life (it’s actually math). But it sure beats chasing charts.


As the years have gone by, I’ve added analysts to my risk management #process and, in turn, they’ve added their own ideas, revolutions, and overlays to my timing model. One of the big ones is a z-score to measure what we call the “lean” in Consensus Macro hedging.


This is one of the many ways we have tried to quantify one of the 3 core legs to the Hedgeye Process stool – Behavioral Market Analysis. Just as a quick reminder to those of you who are new to reading my rants – those 3 legs are:


  1. History
  2. Math
  3. Behavior


If our analysis can’t be quantified into one of those 3 buckets, we don’t really find it a productive and/or effective use of our research time. In other words, we don’t do the GDP or markets “feel” thing – and we definitely don’t try to tell markets what they should do.


Back to this epic SP500 “correction” that consensus has been positioned for (at the start of this week = YTD high net SHORT positions of -60,044 and -31,909 in SP500 Index + E-mini and Russell 2000 mini contracts, respectively):


  1. SP500 was down -0.1% yesterday
  2. SP500 was down -0.1% the day before that
  3. SP500 is down -0.2% from its all-time high


This isn’t always the case, but in a centrally-planned-raging-bull-market, it happens frequently. When everyone is positioned for down, and markets go up - consensus capitulates and covers… then volume dries up and volatility starts to rise – then markets go down!


Intraday yesterday, the US stock market gave you a preview on what keeps the Pain Trade (higher stocks for longer) in motion. It’s called a Dovish Federal Reserve (see Fed Minutes and/or Hilsenrath parroting the same in the Journal this a.m. for details).


So that makes this setup for timing the call on a correction tricky:


  1. Higher-all-time highs are bullish, until they are not
  2. The all-time closing high for the SP500 is only 3 days old
  3. We have at least 3 dovish catalysts between now and June 17th


Nope. No one said timing markets is easy. But there are north of 14,000 hedge funds out there that are still competing with me on the timing of it all! With over $2.2 TRILLION in assets under management, it’s a crowded game.


But, if you’re able to keep your emotions, frustrations, and intellect intact… while, at the same time, concisely measuring the rate of change in net positioning, volume, and volatility… your timing won’t be perfect, but it will be more profitable than consensus.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.97-2.32%

SPX 2105-2139
RUT 1224-1265
VIX 12.14-14.48
USD 92.75-96.16
Oil (WTI) 56.31-61.40

Gold 1200-1240


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


***Click here to watch The Macro Show live at 8:30am.


Consensus Corrections - zzz Chart of the Day

The Macro Show Replay | June 4, 2015



Takeaway: Research Topic: Who has the most to lose in an increasingly imbalanced supply demand environment over the next two years?

We will host a conference call on Friday, June 4 at 1PM ET to discuss the latest Macau data, our outlook on the market and the stocks and the presentation of a new, original research topic.




LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.




  • Details behind May GGR 
  • Discussion of base mass trends
  • The impact of Mass re-classifications
  • Revised 2015 monthly market projections
  • Hedgeye company EBITDA estimates vs the Street (LVS, WYNN, MGM, MPEL, and Galaxy Entertainment) 
  • Who has the most to lose in the increasingly imbalanced supply demand environment over the next two years? 



Attendance on this call is limited. Ping  for more information.


June 4, 2015

June 4, 2015 - Slide1



June 4, 2015 - Slide2

June 4, 2015 - Slide3

June 4, 2015 - Slide4

June 4, 2015 - Slide5

June 4, 2015 - Slide6



June 4, 2015 - Slide7

June 4, 2015 - Slide8

June 4, 2015 - Slide9

June 4, 2015 - Slide10

June 4, 2015 - Slide11
June 4, 2015 - Slide12

EVENT: YELP SHORT Best Idea Update Call (TODAY)

Takeaway: Join us on TODAY, June 4th at 1:00pm EDT as we update our bearish thesis and assess the M&A landscape.

EVENT: YELP SHORT Best Idea Update Call (TODAY) - YELP   invite 2

We will be hosting an update call to our SHORT Yelp (YELP) Best Idea.  YELP's business model is unsustainable, and is already breaking down.  Further, a new major red flag has emerged, which we believe is what prompted YELP to shop itself.  However, we don’t believe YELP will find a buyer.


Join us on TODAY, June 4th at 1:00pm EDT as we update our bearish thesis and why we see an additional 35%+ downside from here.




  • Extreme Attrition Rate: Overwhelming majority of customers are churning off annually.
  • Insufficient TAM: YP.com is not the low-hanging fruit, it's a pipe dream.
  • New Major Red Flag: The story is going to turn much sooner, and get much uglier, than we initially expected
  • Is There a Buyer? Assessing the M&A landscape in terms of both ability and willingness of potential suitors



  • US Toll Free:
  • US Toll:
  • Confirmation Number: 39913335
  • Materials: CLICK HERE



Hesham Shaaban, CFA



REPLAY | Avian Flu Thought Leader Call with Dr. Thomas Elam

Takeaway: 45 million birds have been lost to date

Thank you for those you were able to make the call today.  We wanted to provide those who did not have a chance to tune in, to listen to what we learned about the Avian Flu today. Please click on links at the bottom of the page to listen or view the presentation.


Key Takeaways:

  • This flu is not giving up easily, we need to see a week or two of no new reports to be confident we are near the end.
  • To-date producers have lost 25% of breaker egg supply.
  • New record high prices are being set for turkey meat and eggs.
  • Could take as long as 12-24 months for industry to return to normal.


Audio Replay: Click Here


Presentation: Click Here

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