CHART OF THE DAY: Stock Market Breadth Reminiscent of Summer 2007

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more and subscribe. 


"... With almost 2/3 of stocks in the Russell 3000 (98% of US stocks you could buy/sell) trading below their 200-day Moving Monkey, even the non-quant-one-factor-price-momentum-chart-chaser sees the decay in the internals of the US stock market at this point."


CHART OF THE DAY: Stock Market Breadth Reminiscent of Summer 2007 - Chart of the Day

Invisible Shoots

“The effect was invisible to an observer of the overall market or someone studying just a few stocks.”

-Lasse Heje Pedersen


The aforementioned quote comes from a thick book I cracked open on the way to Houston, Texas yesterday titled Efficiently Inefficient, where the author (Pedersen) prefaces his learnings about markets with his experience working at AQR in 2007.


In the summer of 2007 quant fund AQR (co-founded by the colorful Cliff Asness who is a must follow on Twitter) “was profiting from some bets against the subprime market but was starting to experience a puzzling behavior of the equity markets…”


“… equity investors had started liquidating some of their long and short positions, which affected equity prices in a subtle way. It made cheap stocks cheaper, expensive stocks more expensive, while leaving overall equity prices relatively unchanged…”


Sound familiar?


Invisible Shoots - Bull goes... 07.11.2014


Back to the Global Macro Grind


With almost 2/3 of stocks in the Russell 3000 (98% of US stocks you could buy/sell) trading below their 200-day Moving Monkey, even the non-quant-one-factor-price-momentum-chart-chaser sees the decay in the internals of the US stock market at this point.


While every risk management overlay I use signaled the subtle bubble effect in US Equity prices at the summer 2015 high (1st time we went bearish on SPY = July 2015 Macro Themes call), after equity volatility went from 12 to 40 (VIX), it wasn’t subtle anymore.


As a result, consensus equity market bulls spent AUG-SEP “taking down gross long exposure” and “tightening net exposure” to the point that we had the biggest net SHORT position (CFTC futures/options contracts) of the year at the end of September.


Then the epic October squeeze…


Now, after consensus hedge funds have covered some of that -281,000 net short position (down to -181,291 contracts as of last Tuesday’s non-commercial CFTC positioning data), the SP500 has been down for 4 straight days.


But what does it all mean? Does it matter if the SP500 isn’t “down huge” (if you pick the lower-all-time-high as your reference point)? Or is that just a brain-dead thing to say for someone who is supposed to be selling active management products?


Remember, the SP500 was “flat” in 1987 too.


Much like how we measure everything else here @Hedgeye (in rate of change terms), after an epic OCT squeeze, both the SP500 and Russell 2000 are still -2.4% and -8.6% from their all-time closing highs.


Is that a buying opportunity?


How about in the expensive stocks that continue to get more expensive as the cyclicals (which looked “cheap” on the wrong numbers) continue to get cheaper?


Watching Priceline (PCLN) yesterday was interesting, if only because it tests the narrative of how expensive growth stocks can get in a top-down #GrowthSlowing macro market:


  1. Long-term “growth investors” could have bought all the PCLN in the world at $45/share in OCT of 2008
  2. Short-term chart chasers could have established a cost basis of $1454/share in OCT of 2015
  3. After losing -10% of its market cap in 2 weeks, the stock is still expensive at 28x trailing 12 month earnings


I personally have no opinion on PCLN, so please don’t take this subtle US equity market observation personally.


We’ve had an explicitly bearish opinion on inflation expectations (for almost 18 months now) and continue to see Red Shoots this morning when I look across the risk spectrum of Global #Deflation:


  1. Trending Foreign Currency (FX) #crashes around the world are firmly intact
  2. Both the Hang Seng and KOSPI were down -1.4% overnight after failing @Hedgeye TREND resistance
  3. Copper’s crash continues, down another -0.7% this morning to $2.21/lb (-22% YTD after starting 2015 at $2.82/lb)


So, if you’re still telling clients to buy “reflation” on some bogus PMI lag thing, they’re getting deflated by both marked-to-market risk and trending economic demand data. Reminder, last week’s ISM print in the USA was 50.1 (down -7.8% year-over-year).


But, if you’re being honest about everything that’s crashed (so far) in 2015 (Foreign Currencies, Oil, Commodities, Emerging Markets, Energy/Basic Material Stocks, etc.), you might just be subtly cautious about buying expensive stocks at their all-time highs.


To my sell-side competition, the effect of everything I’ve been signaling all year long is as invisible to them today as it was in November of 2007. And I’m totally cool with that. It’s what makes a market.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.06-2.38%

SPX 2050-2095
RUT 1149--1205
USD 97.68-99.55
EUR/USD 1.07-1.09
Copper 2.19-2.30


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Invisible Shoots - Chart of the Day

REPLAY: Healthcare Earnings Review with Tom Tobin | $HOLX $ATHN $VRX & MORE

Our Healthcare Team hosted a live presentation reviewing earnings season for their top names in their Position Monitor including AHS, ZBH, HOLX, CSLT, ATHN, and CPSI. 


Healthcare Sector Head Tom Tobin and analyst Andrew Freedman also discussed data updates related to their #ACATaper theme and noteworthy takeaways from the October jobs report.  


Tom's slides are available HERE.



investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

INVITE | GOLD FLUSH? Materials Sector Launch Call (NEM, ABX, GOLD Miners)

INVITE | GOLD FLUSH? Materials Sector Launch Call (NEM, ABX, GOLD Miners) - L.T. Gold Price Chart


We are hosting a kick-off call for Hedgeye Materials coverage on Thursday, November 12th at 1:00 P.M., and will illustrate our investment process in the Gold Mining industry.


Gold Bugs Bitten:  Gold prices in dollars have declined since 2011, despite two incremental rounds of quantitative easing and perpetual zero interest rates.  US long bonds have performed well in a similar environment.  What are the gold bugs missing?  We’ll put forth our data-driven take in our Materials launch deck.


Differentiated Sector Approach: The Materials coverage team of Jay VanSciver and Ben Ryan applies our experience in cyclicals, macroeconomics, and commodities to produce Best-Idea focused, process-driven Materials sector research. 


Our research process has three key components:

  • Structural Weakness/Strength: Identify structural vulnerability or resiliency in commodity related business (e.g. over/under capacity, demand susceptibility, deteriorating/improving structural position) that should have a dominant impact on market prices.
  • Unidentified Supply/Demand Changes:  We then look within those industries to see if consensus estimates for production or consumption are likely to prove incorrect based on our data-driven proprietary forecasts ranges.
  • Identify Companies Valued Inappropriately Relative To Forecast:  Deep-dive company specific valuation work oriented toward finding effective exposure our broader commodity thesis.  We align with our firm's top-down macro view when applicable.


Coverage To Broaden: While we believe the Gold Mining Industry provides a clear platform to demonstrate our process, our coverage will expand in coming quarters to areas where we see the best alpha opportunities.  We plan to host at least one Best Ideas call per quarter and to publish daily/weekly sector highlights, in addition to key research notes.


Call Details:


Toll Free:


Confirmation Number: 13623545

Presentation Link: Materials Launch


As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.

November 10, 2015

We've made some updates and enhancements to Daily Trading Ranges. You'll now receive risk ranges for 20 tickers each day -  the last five of which will be determined by what's flashing on Keith's screen and by what names you're asking about. Contact if you have any questions or feedback.


  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
2.38 2.06 2.36
S&P 500
2,050 2,095 2,078
Russell 2000
1,149 1,205 1,184
NASDAQ Composite
5,038 5,177 5,095
Nikkei 225 Index
18,996 19,735 19,642
German DAX Composite
10,527 10,990 10,815
Volatility Index
14.80 18.94 16.52
U.S. Dollar Index
97.68 99.55 99.08
1.07 1.09 1.07
Japanese Yen
121.29 123.74 123.18
Light Crude Oil Spot Price
43.08 45.99 44.11
Natural Gas Spot Price
2.20 2.40 2.31
Gold Spot Price
1,073 1,120 1,091
Copper Spot Price
2.19 2.30 2.23
Apple Inc.
116 123 120
1,290 1,379 1,311
Valeant Pharmaceuticals International, Inc.
71.01 96.39 85.41
Norfolk Southern Corp.
82.21 89.41 88.62
Rackspace Hosting Inc.
26.81 30.02 27.09
Gap, Inc.
25.49 29.13 27.69



The Macro Show Replay | November 10, 2015


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