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December 28, 2015

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.30 2.15 2.25
SPX
S&P 500
1,998 2,084 2,060
RUT
Russell 2000
1,109 1,163 1,152
COMPQ
NASDAQ Composite
4,901 5,095 5,048
NIKK
Nikkei 225 Index
18,503 19,206 18,789
DAX
German DAX Composite
10,153 10,827 10,727
VIX
Volatility Index
14.11 24.21 15.74
DXY
U.S. Dollar Index
97.29 99.35 98.02
EURUSD
Euro
1.07 1.10 1.09
USDJPY
Japanese Yen
120.02 121.69 120.28
WTIC
Light Crude Oil Spot Price
34.97 38.33 38.12
NATGAS
Natural Gas Spot Price
1.69 2.11 2.09
GOLD
Gold Spot Price
1,049 1,081 1,075
COPPER
Copper Spot Price
2.02 2.14 2.12
AAPL
Apple Inc.
104 110 108
AMZN
Amazon.com Inc.
650 679 662
GOOGL
Alphabet Inc.
750 777 765
DIS
Walt Disney Company, Inc.
102 108 105
NFLX
Netflix Inc.
113 120 117
KMI
Kinder Morgan Inc.
13.83 16.91 16.08

 

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

 


Oil, Russell 2000 and VIX

Client Talking Points

OIL

Oil was leading the no volume “reflation”/squeeze last week, WTI was up +5.7% week-over-week, but is straight back down -1.7% this morning after tapping the top-end of our immediate-term $34.97-38.33 risk range. MLPs were up +14.4% last week, but still down -32% year-to-date.

RUSSELL 2000

Small cap, debt leverage, and big beta were the best Style Factors in the U.S. stock market last week (and have been the worst all year), so plenty of selling opportunities in small caps this morning with the RUT down -4.1% year-to-date and downside to 1109.

VIX

Since the AUG breakout in equity volatility (prefaced by a credit signal that’s real), raising cash and lowering your portfolios exposure to illiquidity and leverage has been very smart at front month VIX 14-15; here’s another gift.

 

*Tune into The Macro Show at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 64% US EQUITIES 2%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
FII

Federated Investors (FII) profitability got a boost as the Fed boosted short term rates for the first time in 7 years. Even the slight 25 basis point hike improves profitability in the firm’s leading money fund business by +30% into the New Year.

 

In essence, the firm rolls 30-day paper throughout the short term fixed income curves and the new higher yields forthcoming into 2016 will allow the company to claw back some of the waived fees it has extended to its client base in money funds. Year-to-date the company has waived over $300 million in fees. With that firmly in the rearview, it becomes an opportunity set as FII gets higher yield from cash products next year.

 

In the financial sector, FII is the most asset sensitive name we cover, meaning it benefits most from even marginal interest rate hikes.

RH

We have to give Restoration Hardware Chairman and CEO Gary Friedman props for his approximately nine minute segment on Cramer 2 weeks. Let's face it, him going on what's arguably the most volatile and biased financial media platform, unscripted, is not what we wanted to see. The risk of fireworks was high.

 

But he capped off a successful day RH (CFO and IR) had on the investor conference circuit by focusing on the real value drivers at Restoration Hardware (RH) -- growth in product concepts, and RH's real estate transformation. The appearance was planned well before the earnings release, by the way, coinciding with a business-focused trip to NYC. All-in, it was a positive event for the stock.

TLT

In case you were looking for Style Factors that crushed it last week – the Top 3 gainers were the Top 3 #Deflations of 2015!

  1. High Beta Stocks were +3.5% last week to -12.0% YTD
  2. High Debt (to EV) Stocks were +2.9% last week to -10.9% YTD
  3. Small Cap Stocks were +3.2% last week to -12.4% YTD

*Mean performance of Top Quartile vs. Bottom Quartile (SP500 Companies)

 

In other words, the no-volume squeeze had the smaller cap Russell 2000 outperform the large cap Dow at +3.0% week-over-week vs. 2.5%. Heading into the final week of the year, the Dow and Russell are down -1.5% and -4.1%, respectively.

 

In a slower-for-longer secular growth world, you should pay more for the organic growth that you can find. But, more importantly, you should realize that “cheap” has the illusion of “cheap” because the U.S. economic cycle is slowing alongside the secular. 

Three for the Road

TWEET OF THE DAY

What To Watch: The Fed, Oil And U.S. Dollar https://app.hedgeye.com/insights/48256-instant-insight-what-to-watch-the-fed-oil-and-u-s-dollar… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Take time: much may be gained by patience.

Latin Proverb

STAT OF THE DAY

The CRB Commodities Index was up +2.3% on the week to down -23.4% year-to-date.


CHART OF THE DAY: A Recap Of Last Week's (No Volume) Rally | $XLE $AMLP

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.

 

"... That’s why I’d call Energy (XLE) and MLP (Alerian ETF) stocks leading last week’s counter-TREND bounce (+4.7% and +14.4% to -22.2% and -31.8% YTD, respectively) nothing more than what it was – counter to the TREND that’s been your friend all year long.

 

The combination of #Deflation and #GrowthSlowing knows no “valuation” bottom, until we price in a full economic and credit cycle."

 

CHART OF THE DAY: A Recap Of Last Week's (No Volume) Rally | $XLE $AMLP - 12.28.15 EL chart


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

American Genius

“Genius knows no class, no condition…”

-Dayton Daily News, 1909

 

First and foremost, I wanted to wish you and your loved ones a happy holiday season. I was blessed with a great surprise for Christmas – a visit to CT by my Mom & Dad. That made my wife, four children, and I, as grateful as we can be.

 

I’m super grateful for the year we had @Hedgeye too. So many of the things we worked so tirelessly on as a team came together in 2015. And I wanted to personally thank all of my teammates for believing in the vision. Without their efforts, this doesn’t happen.

 

While there are many other shapes and forms, we are blessed to be living one version of The American Dream. The genius in that inspiration is that it’s pillars aren’t part of an “upper or lower class”, or any pre-condition.

 

Over 100 years ago, an editorial from the Dayton Daily News nailed that about The Wright Brothers. The aforementioned quote comes from a fantastic passage that typifies free-market history in America:

 

“It is a wonderful lesson – this celebration. It comes at an auspicious time. The old world was getting tired, it seemed, and needed help to whip it into action. There was beginning a great deal of talk about man’s no longer having the opportunities he once had of achieving greatness… some were wondering whether a poor boy might work for himself a place in commerce or industry or science.

 

This celebration throws all such idle talk to the winds. It crowns anew the efforts of mankind. It points out to the ambitious young man that he labors not in vain; that genius knows no class, no condition… above all there is a sermon in the Wright Brothers life of endeavor which cannot be preached too often.” (The Wright Brothers, pg 231)

 

Amen.

 

American Genius - flag

 

Back to the Global Macro Grind

 

Last week’s no-volume (one of the lowest of the year) “rally” was led by everything that’s crashed in 2015. With the US Dollar having a counter-TREND down week of -0.8%, “reflation” led the bounce to lower-highs in FX and Commodities:

 

  1. US Dollar Index -0.8% on the week to +8.5% YTD
  2. Euro (vs. USD) +0.9% on the week to -9.4% YTD
  3. Canadian Dollar +0.9% on the week to -16.0% YTD
  4. CRB Commodities Index +2.3% on the week to -23.4% YTD
  5. Oil (WTI) +5.7% on the week to -37.0% YTD
  6. Copper +0.5% on the week to -25.0% YTD

 

And, this morning:

 

  1. USD stops going down and remains bullish TREND @Hedgeye
  2. Oil (WTI) resumes its epic #Deflation, -1.7%
  3. Dr. Copper remains deathly ill, straight back down, -1.9%

 

In case you were looking for Style Factors that crushed it last week – the Top 3 gainers were the Top 3 #Deflations of 2015!

 

  1. High Beta Stocks were +3.5% last week to -12.0% YTD
  2. High Debt (to EV) Stocks were +2.9% last week to -10.9% YTD
  3. Small Cap Stocks were +3.2% last week to -12.4% YTD

*Mean performance of Top Quartile vs. Bottom Quartile (SP500 Companies)

 

In other words, the no-volume squeeze had the smaller cap Russell 2000 outperform the large cap Dow at +3.0% week-over-week vs. 2.5%. Heading into the final week of the year, the Dow and Russell are down -1.5% and -4.1%, respectively.

 

Bull market.

 

It’s amazing what genius you’ll find in simply listening to Mr. Macro Market’s signals amidst all of the Establishment’s noise. As long as you’re thorough and humble enough to accept that the market may not want what you need, you’re starting with a good #process.

 

In a slower-for-longer secular growth world, you should pay more for the organic growth that you can find. But, more importantly, you should realize that “cheap” has the illusion of “cheap” because the US economic cycle is slowing alongside the secular.

 

That’s why I’d call Energy (XLE) and MLP (Alerian ETF) stocks leading last week’s counter-TREND bounce (+4.7% and +14.4% to -22.2% and -31.8% YTD, respectively) nothing more than what it was – counter to the TREND that’s been your friend all year long.

 

The combination of #Deflation and #GrowthSlowing knows no “valuation” bottom, until we price in a full economic and credit cycle.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.15-2.30%

SPX 1
RUT 1109--1163

VIX 14.11-24.21
USD 97.29-99.35
Oil (WTI) 34.97-38.33
Copper 2.02-2.14

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

American Genius - 12.28.15 EL chart


The Week Ahead

The Economic Data calendar for the week of the 28th of December through the 1st of January is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.

 

CLICK IMAGE TO ENLARGE.

The Week Ahead - 12.24.15 Week Ahead


ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015

Takeaway: Domestic equity is set to finish its worst year on record. Meanwhile, investors seeking safety continue to make contributions to money funds

Investment Company Institute Mutual Fund Data and ETF Money Flow:

As 2015 comes to a close, domestic equity mutual funds continues to lose capital, ceding another -$7.4 billion to redemptions in the 5-day period ending December 16th. That brings the year-to-date total outflow to -$167.7 billion, $69.8 billion greater than the mean -$97.9 billion annual redemption in all data since 2007. With only a week left in the year, domestic equity mutual funds are maintaining pace in 2015 for their worst year on record.

 

Despite the aversion to domestic equity funds in 2015, investors favored international equity funds and passive equity ETFs. The former took in +$102 billion in 2015 (above the long term mean), the latter +$128.6 billion (essentially in line with the annual adoption to ETFs).

 

The rotation into passive products also affected fixed income mandates in 2015, with taxable bond mutual funds putting in a rare annual redemption of -$27.7 billion, well below the average annual subscription since 2007 of +$117.5 billion. Fixed income ETFs continued to gain share adding +$51.8 billion to assets-under-management, +$17.2 billion more than the +$34.6 billion annual average.

 

Finally, with investors seeking safety, especially in the latter half of the year, money market funds are set to end the year in positive territory, currently at +$1.0 billion in YTD subscriptions versus their -$52.2 billion average annual redemption since 2007, feeding the rise in risk assets. Money funds assets had annual inflows in 1999 and also 2005, preceding risk aversion in 2000 and 2006-2007 in front of the past two Bear Markets..

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI19 3

 

In the most recent 5-day period ending December 16th, total equity mutual funds put up net outflows of -$11.1 billion, trailing the year-to-date weekly average outflow of -$1.3 billion and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund withdrawals of -$3.6 billion and domestic stock fund withdrawals of -$7.4 billion. International equity funds have had positive flows in 41 of the last 52 weeks while domestic equity funds have had only 8 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$12.0 billion, trailing the year-to-date weekly average outflow of -$297 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds contributions of +$647 million and taxable bond funds withdrawals of -$12.6 billion.

 

Equity ETFs had net subscriptions of +$8.8 billion, outpacing the year-to-date weekly average inflow of +$2.6 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net outflows of -$1.2 billion, trailing the year-to-date weekly average inflow of +$1.0 billion and the 2014 average inflow of +$1.0 billion.

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI1

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly year-to-date average for 2015:

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI2

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI3

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI4

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI5

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI12

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI13

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI14

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI15

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI7

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors poured +$1.3 billion or +12% into the energy XLE ETF.

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI17

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$10.9 billion spread for the week (-$2.2 billion of total equity outflow net of the -$13.2 billion outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$1.2 billion (more positive money flow to equities) with a 52-week high of +$27.9 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI10

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | Record Domestic Equity Outflows in 2015 - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







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