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Cartoon of the Day: 'I Think I Can, I Think I Can...'

Cartoon of the Day: 'I Think I Can, I Think I Can...' - rate hike cartoon 12.04.2015

 

"I will be shocked if the Fed doesn't raise rates on this super #LateCycle jobs report," wrote Hedgeye CEO Keith McCullough earlier today. "For those of you measuring US jobs in rate of change terms, 211k is yet another #slowing vs. the Q1 Labor Cycle peak."

 


HEDGEYE Exchange Tracker | Acceleration at CME

Takeaway: CME's 4Q15 Y/Y change remains negative given the tough 4Q14 comp, but activity expanded Y/Y in Nov and is continuing to expand in Dec.

Weekly Activity Wrap Up

Trading activity for equities and options was light in the 5-day period ending December 3rd, which included the Friday after Thanksgiving. Cash equity volume came in at 6.6 billion shares traded per day, bringing the 4Q15TD ADV down to 7.0 billion, which is flat versus 4Q14 and -4% lower than 3Q15. Options put up an average of 13.2 million contracts per day this week, blending the quarter-to-date daily average to 16.3 million, -6% lower Y/Y and -10% lower Q/Q.

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon1

 

Total futures activity (both on CME and ICE) came in at 18.7 million contracts per day in the most recent 5 days, blending 4Q15TD ADV to 18.3 million, a -5% Y/Y change and -2% Q/Q change. Although quarterly comps are still tough against last year with the threat of the Grexit in 4Q14, monthly activity is starting to accelerate. Activity levels on CME rose to +6% in November Y/Y and December is comping currently at +15% higher. In concert with rising activity, open interest levels are up +10% from year-end 2014 which will drag trading volume to higher levels into 2016. We estimate that CME should also announce its variable dividend of up to $3 per share over the next 2 weeks continuing to make shares attractive in the short run as well.

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon16

 

 

 

U.S. Cash Equity Detail

U.S. cash equity trading came in at 6.6 billion shares traded per day this week. That brings the fourth quarter average to 7.0 billion shares traded per day, a 0% Y/Y change and -4% Q/Q contraction. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 24% share of fourth-quarter volume, a +2% year-over-year increase, while NASDAQ is taking an 18% share, a -10% year-over-year decline.

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon2

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon3

 

U.S. Options Detail

U.S. options activity came in at a 13.2 million ADV this week, bringing the 4Q15TD average to 16.3 million, a -6% Y/Y and -10% Q/Q contraction. The market share battle amongst venues continues to be one of losses at the NYSE/ICE, which has lost -7% of its share year-over-year settling at 19% of options trading currently. Additionally, CBOE's market share sits at 25%, -16% lower than 4Q14. NASDAQ, on the other hand, has increased its market share by +15% compared to 3Q15, bringing itself only -1% lower than the 24% share it held a year ago. Additionally, BATS' 8% share of 4Q15TD volume is +34% higher than in 4Q14. Finally ISE/Deutsche's 15% share in 4Q15TD remains consistent with 3Q15, which brings it to +7% Y/Y growth.

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon4

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon5

 

U.S. Futures Detail

CME Group activity came in at 13.2 million contracts traded per day, bringing the 4Q15TD average to 13.4 million, a -10% Y/Y and -7% Q/Q contraction. CME open interest, the most important beacon of forward activity, currently tallies 103.4 million CME contracts pending, good for +10% growth over the 93.7 million pending at the end of 4Q14, an improvement from last week's +9%.

 

ICE saw volume of 5.5 million contracts traded per day this week, bringing 4Q15TD ADV to 4.9 million, +12% Y/Y and +15% Q/Q growth. ICE open interest this week tallied 69.4 million contracts, a +17% expansion versus the 59.4 million contracts open at the end of 4Q14, an improvement from last week's +12%.

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon6

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon8

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon7

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon9 

 

Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon10

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon11

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon12

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon13

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon14

HEDGEYE Exchange Tracker | Acceleration at CME - XMon15

 

Sector Revenue Exposure

The exchange sector has broadly diversified its revenue exposure over 10 years as public entities with varying top line sensitivity to the enclosed trading volume data. The table below highlights how trading volumes will flow through the various operating models at NASDAQ, CME Group, ICE, and Virtu:

 

HEDGEYE Exchange Tracker | Acceleration at CME - XMon19 3

 

 

Please let us know of any questions,

 

Jonathan Casteleyn, CFA, CMT 

  

  

 

 Joshua Steiner, CFA

 

 

 

 


NSC | Working Independently

Upshot:  We continue to think that NSC offers relative upside, and would look to initiate a position in the mid-70s to low 80s as presented in our Best Ideas Black Book call above.  The rejection of CP’s low bid should come as little surprise, but the reply incorporated a list of hurdles that would need to be overcome in a new and higher bid.  NSC’s rapidly improving performance metrics create the potential for a favorable cost surprise along the lines of the 3Q 2015 beat.

 

 

NSC/Rail Black Book (9/16/2015):

 

 

 

NSC/CP | Maybe But…

NSC | Revision Inflection

 

 

 

NSC Is Worth Far More Than Discarded Bid:  Holders of NSC have been in a tough spot, we think, with risks to an improbable deal in the way of a longer-term performance opportunity.  The CP offer premium was always too low, especially given the regulatory risks and process duration.  Pursuing a merger would attract regulatory attention, the last thing an industry making use of a strong pricing leverage needs.  The offer was too low, awkwardly presented, and incompletely planned – NSC is just making that clear with its thoughtful and well-presented rejection.  For a modestly patient investor we think there is a good deal more upside for NSC.  For deal optimists (not us) the potential for a higher bid remains.

 

NSC | Working Independently - NSC 1 12 4 15

 

 

Management Is Confident For A Reason:  The longer-term outlook put forth by NSC’s newish management team was favorable and ahead the multiyear consensus estimates by our calculations.  NSC’s cost and capital improvements are in process, and performance metrics are improving markedly.  That matters.  Higher speeds and lower dwell should push cost out of the network, a key factor in NSC’s beat last quarter.  As long at NSC’s results continue to track with our long thesis (linked above), we expect to stick with the shares until at least the triple digits, all else equal.  In a weak equity market, we would expect shares of NSC to be defensive, sector relative outperformer.

 

NSC | Working Independently - NSC 2 12 4 15

 

 

For Deal Optimists:  NSC provided a transparent, thoughtful, and detailed response to the CP bid.  Management took the low bid seriously, respecting shareholder interests.  NSC’s Board also gave CP a clear roadmap of the objections that would need to be overcome to strike an agreement.  CP can now work on constructing a higher bid (perhaps >$140, stock heavy) overcoming NSC’s straightforward concerns….if CP’s management is serious about completing the transaction.

 

 

Sentiment & Weather:  4Q weather in the Northeastern U.S. has been unusually warm, hurting coal volumes for NSC and other rails.  Weather varies, and is not of the same relevance as MATS regulations and sustained lower natural gas prices.  NSC’s coal franchise has been in secular decline for pretty much the entire “rail renaissance”, with pricing helping to offset the impact on revenue.  NSC is not very popular on any side of the Street, as we see it.  The vaguely hostile Q&A on this morning’s deal rejection call made that reasonably clear.  

 

NSC | Working Independently - NSC 3 12 4 15

 

 

Upshot:  We continue to think that NSC offers relative upside, and would look to initiate a position in the mid-70s to low 80s as presented in our Best Ideas Black Book call above.  The rejection of CP’s low bid should come as little surprise, but the reply incorporated a list of hurdles that would need to be overcome in a new and higher bid.  NSC’s rapidly improving performance metrics create the potential for a cost surprise while the Street fixates on volume pressures.


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RH | Black Book Before The Print

Takeaway: On Tues Dec 8th at 1:00 pm ET we're hosting a Black Book call on RH.

We're issuing an updated Black Book and will be hosting a call on Tuesday December 8th at 1pm EST to discuss how our thinking on RH has evolved since the company’s last print and what our thoughts are headed into Thursday’s earnings. A lot has happened in 13 weeks... not the least of which is the stock underperforming not only the market by 16%, but Retail as well (by 7%) – despite RH being more insulated from some of the issues that are clipping earnings today for retailers more broadly.  Over this time period, RH meaningfully accelerated square footage growth, launched two new concepts. Some say it’s bad timing. We disagree.

 

Nonetheless, we’re going to go through the puts and takes on a TRADE, TREND and TAIL duration. We’ll present our incremental insight, vet our case to see where we could be wrong, and share some of the pushback we’ve generally received in the meetings we’ve done in the past month.

 

Call details and full topic outline to come on Monday


Eye On China: Our Outlook for the Yuan

 

Could the Chinese government devalue the Yuan 15-20%? Hedgeye Senior Macro analyst Darius Dale responds to this subscriber question in this excerpt of The Macro Show.   


Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII

Takeaway: People aren’t bearish enough on where GPS’ P&L could go. | 15 SIGMAs this wk. ULTA, EXPR only pos setups. AEO is the big negative one to us.

GPS - Lousy November Comp

Our Take: "Just another lousy month for Gap, Inc." At least that's what we think the sentiment on the stock is saying. There's definite complacency in its persistent ability to underperform.

But make no mistake...this story can, and likely will, get a lot worse.  Sales productivity today (blended) is in excess of $400/foot. In past recessions it's dropped down closer to $360/foot. And on a go-forward basis, with increasing competition from Uniqlo, H&M, and not to mention little ol' Primark, we think that GPS is just structurally unable to compete -- especially at a 12%+ margin structure when we're late in the economic cycle.

We're fully aware that the stock is down 40% year to date, and it looks "cheap" (whatever that means) at 10x earnings. But take sales productivity down by 15%-20% and the fixed cost deleverage takes EPS negative. Not so "cheap" on those numbers.

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart1

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart2

 

15 Retail SIGMAs This Week

We’ll have our full book of 125+ SIGMAs out shortly. But this week’s data offered up far more bad than good. And we’re not talking about what the numbers reported as much as we are what the sales/inventory/GM triangulation suggests about 1H16. Bottom line, estimates remain too high. We’re at peak margins, and there are too few dollars chasing too much inventory.

Winners: The BIG winners, where the setup augers quite well for estimate revisions even above what we just saw, are ULTA, EXPR, and that’s pretty much it.

Losers: Here’s the inverse – inventory/sales/margin setup is changing negative on the margin. Biggest Losers are: AEO (adding to our short bench), DG, PVH, FIVE, LE, GIII

 

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart3

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart4

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart8

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart5

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart6

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart7

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart16

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart9

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart10

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart11

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart12

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart13

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart14

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart15

Retail Callouts (12/4) | GPS Comps, SIGMAs - ULTA, AEO, EXPR, DG, PVH, FIVE, LE, GIII - 12 4 2015 chart17

 

AMZN - After key Amazon representatives no-showed a meeting with Robbinsville, NJ officials Wednesday, the mayor vowed to take the online retail giant to court demanding the shutdown of its 1.2 million-square-foot warehouse if the traffic problems remain unresolved.

(http://www.ecommercebytes.com/cab/abn/y15/m12/i03/s03)

 

DG - Dollar General Names John W. Garratt as Chief Financial Officer

(http://investor.shareholder.com/dollar/releasedetail.cfm?ReleaseID=945346)

 

Rossignol in Talks to Buy French Bike Maker

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=8&id=58573)

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%
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