How Much Lower Can Stocks Go?

Client Talking Points

VIX

Great contrarian indicator with the Financial Times running a “risk on” story because the VIX is “below 20.” That, of course, means nothing to us as the risk range for the VIX is 18.55-29.47 coming off the all-time low in cross-asset class volatility last year; big asymmetry to the upside.

DOW

Signaled immediate-term TRADE overbought in Real-Time Alerts (the General Electric activist move helped perpetuate that) within our bearish TAIL risk view yesterday. We have immediate-term downside in the risk ranges for both the SPY and DIA of 6%; fits the asymmetric volatility setup too.

GOLD

Gold held its immediate-term breakout line of $1,124 yesterday and is up with Copper down -0.7%; everything global cyclical remains in crash mode so this isn’t a spot to be complacent. We see upside in Gold to $1,157 and we expect to see that if the UST 10YR breaks down through 1.99% again.

 

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

 

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 9%
FIXED INCOME 25% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
GIS

Our Consumer Staples team remains positive on General Mills coming out of the 2Q15 earnings call. We have been LONG GIS for the last six months and continue to have a favorable view of the company due to the following reasons:

  • Sequential improvement in cereal
  • Growth in Natural & Organic categories
  • Snacking
  • Cost cutting initiatives
  • M&A activity
PENN

Many of the regional gaming states will release September revenues next week and as we’ve written about, they should look a lot better than August. Overall same store revenue declined 5% in August (we had predicted –2%) but most of the decline was due to the calendar and a difficult comparison. For September we are projecting an increase of 2% YoY

 

Our Missouri tracker is forecasting September gaming revenues to be up 3.6% YoY. This is a 6% sequential improvement from August's YoY change of -2.5%. Meanwhile, Pennsylvania slot revenues were up 4% in September. Our thesis for a sequential rebound in September remains intact. We like PENN on the long side from these levels.

TLT

It was an important couple of weeks for those who were still wrestling with our lower-for-longer views. The brevity of the macro moves post-report Friday proves just how non-consensus that call remains in a year where the S&P 500 is down -8%. The scary thing with regard to Janet’s credibility is that bad news is now being priced in as bad news. Moreover, we believe this late-cycle weakness is likely to remain ongoing.  

Three for the Road

TWEET OF THE DAY

Do You Suffer From H.P.A.D.? (Hedgie Performance Anxiety Disorder) https://app.hedgeye.com/insights/46702-do-you-suffer-from-h-p-a-d-hedgie-performance-anxiety-disorder… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

There is no exercise better for the heart than reaching down and lifting people up.

John Holmes

STAT OF THE DAY

The average out-of-network ATM fee in the U.S. is currently at a record high of $4.25, up 21% over the past 5 years.