Keith's Daily Trading Ranges [Unlocked]

Below is a complimentary look at today's Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to subscribe.

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KATE | Why KATE’s 8K Matters

Takeaway: KATE gave additional info to stem neat-term modeling volatility. But it’s what they didn’t say that’s probably more important.

The company filed an 8K in conjunction with its presentation today. A couple quick thoughts…

1) No change in guidance. It’s pretty safe to say that if business has been trending down, or was negative in any way, shape, or form, then KATE would have been obligated to disclose that in this 8K. Given how the stock has been trading, this is critical.


2) The company gave additional information related to store count and square footage in the US vs. Int’l. This might sound like a ‘who cares’ event, but given the poor level of disclosure at KATE, it is a step in the right direction.


3) Similarly, the company provided new information as it relates to the size of Jack, and Saturday, as well as the top line impact of its efforts to improve Quality of Sale.  Does any of this allow us to build a more accurate 2017 model for units, productivity or margins? No, but it offers up some clarity for people who are scratching their heads wondering why the company is beating on comp, and yet missing on the top line. It won’t matter anymore after the 4Q report. But should stem some of the volatility in results until then.


No Change to Our Thesis

We Still think KATE’s top line will double and margins will go from 6.6% last year to the high teens in three years’ time. All in, we’re looking at better than $2.50 in earnings for a stock that can’t seem to stay above $20. The CAGR needed to get to $2.50-$3.00 is well north of 50%, and yet the stock is trading at a high teens multiple on next year’s $1.07. This is a company that hasn’t meaningfully turned a profit since 2008, and once people get visibility into 2016, we think that investor sentiment around its growth and profitability will turn up substantially. This is a name that could, and should double by the end of next year. KATE remains one of our top picks in retail.


KATE | Why KATE’s 8K Matters - kate financials


CHART OF THE DAY: The Most Over-Owned Stock In Human History

Editor's Note: The chart and excerpt below are from this morning's Early Look written by Hedgeye CEO Keith McCullough. Click here to bid farewell to lousy, consensus research once and for all.


...Back to the most over-owned stock in human history (in market cap and manic media news-flow terms), newsflash: “Apple is relatively cheap” @WSJ (today). Really? I didn’t know that. What does the company do again? Right. It’s got big cap beta.


Particularly in developing bear markets (born out of economic and profit cycle peaks = 2000, 2007, 2015) never underestimate the power of the alpha turning into beta.


CHART OF THE DAY: The Most Over-Owned Stock In Human History  - z app l ll  ll 09.10.15 chartvf

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Connecting The Dots

“Connecting the dots and solving a problem by being exposed to more ideas.”

-Gary Klein


That’s how cognitive psychologist Dr. Gary Klein opens a fantastic chapter that he titled “Connections” in one of the better #behavioral books I have read since Thinking, Fast And Slow (Kahneman) – it’s called Seeing What Others Don’t.


That is the goal, after-all. Why else would you work in this profession? I may not run money anymore (= conflict of interest with you, our subscribers), but I wake up at this godforsaken hour every morning with one goal – trying to see something that consensus hasn’t.


For me, “connecting the dots,” is a repeatable process. On 2 hand-written pages in my notebook, I write down market prices, volumes, volatilities, etc. (every day, for 16 years), then I try to connect trades, trends, and themes - i.e. let Mr. Macro Market tell me what to do.


Connecting The Dots - z z notebooks

*** Click here to join Keith live this morning at 9:00am ET on The Macro Show.


Back to the Global Macro Grind


The #process is actually becoming simpler as I add more people and parts. My experience in building Hedgeye for the last 7 years has exposed me to an entirely new generation of thinking. I’ll be forever thankful to my millennial teammates for that.


Admittedly, to the more qualitative research crowd, I can be agitating. But #NoWorries, they agitate me too. We’re all just random participants in a dynamic and non-linear ecosystem anyway. Mr. Market doesn’t care what you think about the Apple-Hermes watch.


What he (or she) did care about yesterday was this thing that AAPL has though – from a Style Factoring perspective, it’s called US Equity Market Beta:


  1. SP500 had a nasty intraday reversal, closing -1.5% on the day, taking its current correction back to -8.8%
  2. Russell2000 continued lower alongside most things beta, taking its draw-down to -11.4% from YTD high
  3. Apple (AAPL) down -1.9% on “we’re gonna sell lots of new products” day, remains bearish TREND @Hedgeye
  4. Biotech (IBB) down -2.2% after failing at TREND resistance (draw-down -13.6% from its all-time #Bubble high)
  5. Oil & Gas Stocks (XOP) down -2.7% and are down -36% from where people chased the “reflation” trade in Q2


While these are all different flavors of US Equity Beta Bets, they’ve all been quite painful to be levered-long of during both a top-down growth and inflation slow-down and a bottom-up revenue and earnings one.


This is where both the market and I completely disagree with the Lee Cooperman case that this bear developing in the US Equity Market is all about everything but the fundamentals. Connect the dots man – being long Linn Energy (LINE) during #Deflation?


Back to the most over-owned stock in human history (in market cap and manic media news-flow terms), newsflash: “Apple is relatively cheap” @WSJ (today). Really? I didn’t know that. What does the company do again? Right. It’s got big cap beta.


Particularly in developing bear markets (born out of economic and profit cycle peaks = 2000, 2007, 2015) never underestimate the power of the alpha turning into beta.


Japanese stocks are “cheap” (have been for decades). And they recently generated a lot of alpha for Global Equity managers who are long/short (overweight/underweight) other big cap equity markets. But now all that alpha is turning into an equity beta risk. Why?


  1. Mr. Market signaled get out of Nikkei on bounces (so we did)
  2. The causal and correlating factor for Japanese Stocks to go down is the Yen going up
  3. If the Fed comes our way on “no rate hike” in SEP = Dollar Down à Yen Up


No Lee, that has nothing to do with the machines. So don’t blame them. It has everything to do with connecting the macro dots. Moving along the line items in my notebook, that brings me to what they call the Fed’s “dots” this morning:


  1. Fed Fund Futures on a SEP hike have dropped back down to 30% (Mr. Market’s vote on probability of a rate hike)
  2. Larry Summers is still lobbying to be Hillary’s boy with “5 Reasons Why” the Fed shouldn’t hike
  3. Hilsenrath (Fed man @WSJ) is implying the Fed may or may not hike in SEP #thanks


Sadly, this means the Fed has NOT yet decided on next week’s rate move and are literally watching the S&P Futures to make a game-time decision about a player (the US economy) that is clearly injured in Q3 GDP slowing terms.


Shall we blame risk parity people for that? Confusion, my non-linear friends, breeds contempt in markets. It also perpetuates volatility. And this brings me all the way back to the #1 disconnect between Hedgeye’s forecast for 2015-2016 that isn’t yet consensus:


#LateCycle Growth Slowing (globally and locally)


From Steve Einhorn (Cooperman’s long-time macro strategist at Omega Advisors) who said on July 20th, 2015 (literally the day AAPL put in its all-time peak at $133) that there’s “still quite a while to go” to almost every consensus economist in the league… the “dots” on both their growth expectations and returns continue to be pushed out.


And if you want to connect your own dots on that very basic reality (497 of 500 S&P Companies have reported Q2 = Down -3.5% Revenues, Down -2.2% Earnings), take Einhorn/Omega’s word for it: “fundamentals largely determine how the stock market does.”


I’m thanking my notebook and team for seeing that.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.11-2.24%

RUT 1116-1175
Nikkei 17,108-19,137
VIX 21.86-31.70
EUR/USD 1.11-1.13
Oil (WTI) 41.44-48.41


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Connecting The Dots - z app l ll  ll 09.10.15 chartvf

The Macro Show Replay | September 10, 2015


Japan, Oil and Treasuries

Client Talking Points


Neither did a follow through day on what looked like a classic bear-market bounce in Japanese stocks; Nikkei -2.5% overnight in what was an ugly session for Asian Equities – all the Fed has to do is no SEPT hike and the Dollar Down --> Yen Up --> Nikkei Down pattern repeats.


Oil seems to like the idea of no SEPT hike (new bull market catalyst = “higher gas prices”), +0.8% this morning  to $44.48 with a risk range that finally implies a higher-low of support > $41/barrel WTI; if the Fed fights Fed Fund futures and hikes into the slow-down, we expect every “reflation” trade to get blasted.


The UST 10YR tapped 2.24% resistance yesterday and quickly backed off to 2.18% as U.S. Equities had another huge intraday reversal – it’s sad, but the Fed is still probably sitting there trying to make a game-day decision (on an injured economy) based on what SPY does – here’s the 3 month setup into the event.


**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The franchisees voted YES on the proposal to launch All Day Breakfast nationwide at all 14,318 U.S. locations. This is a very important, monumental move by CEO Steve Easterbrook. It will define his legacy as the CEO that changed McDonald's (and the rest of the industry) for many years to come. In 2016, if MCD (with all day breakfast and an improved value message) can drive same-store sales up by 5%, the system will generate $1.9bn in incremental system-wide sales. 


As noted in our survey we released on July 27th, it is evident that All Day Breakfast (ADB) will be a game changer for the company. Breakfast is the single most requested item by McDonald’s customers. Listening to the customer is a tried and true way to succeed.


Following our recent visit to Plainridge and meetings with senior management, we reiterate our positive Penn National Gaming thesis.  Stability in regional markets provides good earnings visibility while expected strong contributions from Plainridge and Jamul next year should provide a nice 2 year growth story.


Regional gaming likely cooled off in August following a strong July.  While that could provide some consternation as the states begin releasing August gaming revenues later this week, the YoY slowdown is more related to quantitative factors rather than the health of the regional gaming customer.  September should quickly provide evidence of that.


The labor market peaks late cycle and the trend in key employment data suggest things are going from great to good (marginal changes matter). The ADP employment report showed a sequential acceleration, printing +190K vs. +185K in July. But to be clear, this series peaked at over +200K additions in the first couple of months of 2015. Initial jobless claims bottomed about six weeks ago. The trend in that series is moving back to the all-important 300K level. While the headline NFP number was a bomb on Friday, printing +173K for Aug. vs. estimates for +215K, the trend is also turning. This series also peaked back in February on a YoY rate-of-change basis.


Why do we point to all of this growth-slowing data? Because it’s meaningful.

  • As we have mentioned repeatedly Central Banks take a reactionary policy response to the data. The market is becoming more efficient at getting in front of policy the longer we venture into this modern-day central policy experiment
  • When forward-looking growth expectations are taken down, the back end of the Treasury curve flattens (this is good for TLT and EDV)
  • In reaction to more dovish policy monetary policy measures, the market likes gold over dollars coming out of central policy events

Three for the Road


McCullough: 1987 Redux?… via @KeithMcCullough

#markets #stocks $SPY $VIX $QQQ



Doing what you like is freedom. Liking what you do is happiness.

Frank Tyger


According to a Reuters estimate based on the monarchy's interests in its key investment vehicle, royal estates and its trove of treasures, the British monarchy has nominal assets worth about 22.8 billion pounds ($34.8 billion).


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