Takeaway: We are flagging JPMorgan (Score: 96) (short) and Federated Investors (FII - Score:15) (long) on sentiment and short interest.

This morning we are publishing our updated Hedgeye Financials Sentiment Scoreboard in conjunction with the release of the latest short interest data last night. Our Scoreboard now evaluates over 300 companies across the Financials complex.


The Scoreboard combines buyside and sell-side sentiment measures. It standardizes those measures to an index of 0-100, where 100 is the best possible sentiment ranking and 0 is the worst. Our analysis shows that a contrarian strategy can be employed successfully by taking the other side of stocks with extreme readings in sentiment, either bullish or bearish. Once sentiment reaches these extreme levels, it becomes a very asymmetric setup wherein expectations become too high or too low.  


We’ve quantified the tipping points for high and low sentiment. Specifically, we've found that scores of 20 or lower have a positive, average expected return while scores of 90 or greater are more likely to underperform.


Specifically, our backtest of 10,400 observations over a 10-year period found that stocks with scores of 0-10 went on to produce an average absolute return of +23.9% over the following 12-month period. Scores of 10-20 produced an average absolute return of +11.9%. At the other end of the spectrum, stocks with sentiment scores of 90-100 produced average negative absolute returns of -10.3% over the following 12-months.


The first table below breaks the 300 companies into a few major categories and ranks all the components on a relative basis. The second table breaks the group into smaller subsectors and again gives them relative rankings within those subsectors. 


This week we're flagging First American (FAF - Score: 19) as a long as our call to "hide out" in Housing favors the title insurers. We are also highlighting Federated Investors (FII - Score: 15) as screening well from both a sentiment/short interest and a fundamental research standpoint.








The following is an excerpt from our 90 page black book entitled “Betting Against the Herd: Generating Alpha From Sentiment Extremes Across Financials.”


Let us know if you would like to receive a copy of our black book, which explains this system and its applications.


BUYS / LONGS: Financials with extremely low sentiment readings of 20 and below on our index (0-100) show strong average outperformance in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 20 or lower rise an average of +15.1% over the next 12 months in absolute terms.   


SELLS / SHORTS: Financials with extremely high sentiment readings of 90 and above on our proprietary sentiment index (0-100) demonstrate a marked tendency to underperform in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 90 or greater fall in value an average of -10.3% over the next 12 months in absolute terms. 






Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT




The fundamentals are still in rough shape but the stocks could continue to move higher. The first 11 days of October were better than expected, owing to a decent start to Golden Week. Mass comps are finally easing - October 2014 posted the first negative Mass comp ever - and Macau Studio could provide a late month boost. Given some public commentary and the apparent increase in table allocations to Galaxy and Macau Studio City, the government appears more accommodative, and could announce an expansion of the IVS to additional cities. However, keep a trade a trade since stability, and certainly growth, remains elusive and 2016 EBITDA estimates look much too aggressive to us.


Please see our detailed note:

New Best Idea: Short Genesis Energy LP (GEL)

We are adding Genesis Energy, L.P. (GEL) to our Best Ideas list as a short.  We see more than 50% downside to fair value.


GEL is $4.8B market cap MLP with a variety of midstream businesses: Gulf of Mexico (GoM) offshore pipelines, marine transportation, crude-by-rail terminals, refinery sulfur removal services, onshore crude oil and CO2 pipelines, trucking and other marketing assets.  The asset base has been put together largely via acquisition over the last 10 years – the Company has an impressive history of growing its distribution with “accretive” deals, its largest being the July 2015 purchase of Enterprise Products’ (EPD) offshore GoM pipelines and services business for $1.5B.  The market lauded this acquisition, and it is a big reason why GEL is one of the best performing MLPs in 2015, +4% vs. the AMZI Index (25)%.


But we are far less optimistic on the prospects of that acquisition … one of the many topics we’ll cover in our conference call presentation on GEL on Thursday, October 15th at 11am ESTAll Hedgeye Energy subscribers will receive the dial-in information and slide deck early Thursday morning.


Key Topics 

  • Cyclical and Structural Headwinds Emerging: Near-term and long-term outlook for GEL’s key operating segments: offshore oil pipelines, marine transportation, and crude-by-rail
  • A Gift Horse from EPD?  What did GEL acquire?  And was it really a great deal?   
  • What’s in a Distribution?  A critical look at GEL’s non-GAAP financial metrics and distribution policy
  • Valuation - What’s GEL Worth?  We go far beyond the run-of-the-mill MLP valuation methods to show that GEL has more than 50% downside to fair value
  • Catalysts and Risks:  When and how might our thesis play out?  And what are the risks to this idea?


Kevin Kaiser

Managing Director


CHART OF THE DAY: Fed Rate Hike Expectations Crashing

Editor's Note: The chart and excerpt below are from today's Early Look written by Hedgeye CEO Keith McCullough. Click here if you would like to learn more about how you can subscribe and stay ahead of consensus.


CHART OF THE DAY: Fed Rate Hike Expectations Crashing - z cod bbb


"...Last week’s Down Dollar move was the 2nd in as many weeks. As you can see in our Chart of The Day (Fed Fund Futures), post the #LateCycle US employment slowdown, the probability of a “rate hike” has crashed again."


Bear Squeeze

“Who was the first guy that looked at a cow and said, “I think I’ll drink whatever comes out of those things when I squeeze them”

-Calvin & Hobbes


After reviewing this past week’s macro market moves, I couldn’t think of anything other than something that could make me chuckle for this morning’s quote. It took the worst US data point of the year (SEP jobs report) to drive 2015’s “best weekly gain.”


Everyone nailed it. Yep. After consensus called for > 3% US GDP growth and > 3% long-term (10yr) Treasury Yields, it will take a GDP growth number with a 1% in front of it for Q3, Down Dollar, and Down Rates to “stimulate” the “reflation trade” again.


But how high can it go? Or was this the bull case for Equities all along? After a +9% weekly gain for West Texas Crude Oil (triple the US stock market’s weekly gain) is the next 2015 bull-narrative-drift that “higher-gas prices” are going to pump up the consumer?


Bear Squeeze - denial cartoon 09.28.2015


Back to the Global Macro Grind


Last week’s Down Dollar move was the 2nd in as many weeks. As you can see in our Chart of The Day (Fed Fund Futures), post the #LateCycle US employment slowdown, the probability of a “rate hike” has crashed again.


With the US Dollar Index -1.1% on the week, here were the week-over-week callouts:


  1. EUR/USD +1.4% on the week, taking it to -6.1% YTD
  2. Canadian Dollar +1.6% on the week, taking it to -10.2% YTD
  3. CRB Index +4.4% on the week, taking it to -10.2% YTD
  4. Oil (WTI) +9.0% on the week, taking it to -15.6% YTD
  5. Copper +3.8% on the week, taking it to -14.7% YTD
  6. Gold +1.7% on the week, taking it to -2.6% YTD
  7. SP500 +3.3% on the week, taking it to -2.1% YTD
  8. Energy Stocks (XLE) +8.0% on the week, taking them to -12.9% YTD
  9. Basic Materials Stocks (XLB) +6.7% on the week, taking them to -9.1% YTD
  10. Healthcare Stocks (XLV) +0.2% on the week, taking them to -0.1% YTD


In other words, the new bull-narrative-drift case is A) to get the stock market back to break-even for 2015 by B) arresting the crash in #deflation sectors and C) pretending that it’s still “mid-cycle.”


Fed Easing is the best path to non-economic-prosperity, remember? Whenever the economy slows, we just have to mask the weakness of it all with the illusion of growth – Down Dollar Reflation – and call it “demand accelerating”, or something like that.


At one point on Thursday, the Minneapolis Fed Head (Kocherlakota) suggested that your un-elected Fed should “consider reducing rates.” The Reflation Trade loved that. So did everything that’s been imploding in the land of Emerging Markets:


  1. Emerging Market Equities (MSCI) ripped 2x the SP500’s gain last week, closing +6.9% (still down -10.1% YTD)
  2. Latin American Equities (MSCI Index) squeezed +9.5% higher last week (but still crashing -22% YTD)
  3. Indonesian Stocks ramped +9.1% last week, but are still -12.2% YTD


Does Down Dollar stop Emerging Markets from crashing, for a week? Can you see the TRADE vs. the TREND here?


  1. Brazilian Real +4.9% week-over-week, but -35.8% year-over-year
  2. Russian Ruble +6.9% week-over-week, but -34.7% year-over-year


I’ll bet you a fully-funded Draft Kings account that your average US stock market navel-gazer can’t tell you what the FX market did last week, never mind all of the commodity-country-currency links.


It was a Bear Squeeze to remember (and fade again), indeed.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.13%

VIX 15.94-27.98
USD 94.58-96.01

Gold 1135-1167

Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Bear Squeeze - z cod bbb

October 12, 2015

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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.