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Our monthly sentiment run is a behavioral, market-based gauge of investor sentiment in the Basic Materials Sector. Any relative performance measure is tied to the benchmark S&P 500 Materials Sector INDEX (GICS). Further screening methodologies are included in the link to the tracker below.


CLICK HERE to access the February Sentiment Tracker presentation.


Key Call-Outs:


Positive Sentiment

Negative Sentiment


  • Looking at short-interest, 6 of the top 12 least shorted names are in the Gold Mining space with large-cap Diversified Metals and Miners being the most heavily shorted (FCX, AA, TCK, AWC, FMG).
  • Combining consensus “buy” ratings and short-interest, Diversified Chemicals & Specialty Chemicals have the most positive relative sentiment when combining both metrics. Diversified Metals and Mining, Aluminum, & Commodity Chemicals have the most negative sentiment.
  • With the outperformance in precious metals YTD, relative outperformance, declines in volatility premiums, and a cutting in short positioning all suggest the market views Gold Miners much more favorably vs. the beginning of 2016. 5 of top 12 declines in volatility expectations are in Gold Mining names. The largest 2016 YTD spikes in implied vol. come in the chemicals space (9 of top 12), but we believe this is due to broader market volatility.
  • The largest sector divergences in growth metrics (TOP-LINE, OPERATING, BOTTOM LINE) exist in the mining space. We expect a downward revision in sell-side estimates in the space as many mining company expectations still need to be taken down while some are already discounted with declining operating leverage.  


CHART OF THE DAY: How To Win The 2016 Alpha Bowl, Our Favorite Sector

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.


"... You don’t just have to be in Cash and Long-term Treasuries to win the 2016 Alpha Bowl. You could have easily ran a net neutral exposure long/short US equity hedge fund and set yourself up with the following portfolio:


  1. Put a billion into Long Utilities (XLU) which were up another +2.5% last week to +7.6% YTD
  2. Put a billion on the short side of the Financials (XLF) which got sacked for another -3.5% loss last week (-12.1% YTD)" 


CHART OF THE DAY: How To Win The 2016 Alpha Bowl, Our Favorite Sector - 02.08.16 Chart

Same Old Thing

“Something is going to have to change.”

-Cam Newton


That’s what the young leader of the Carolina Panthers had to say after last night’s Super Bowl loss to the Denver Broncos. I thought Newton was both truthful and accountable. When things don’t go your way, change is the only path forward.


Fortunately, we don’t have to apologize this morning. We were on the right side of the #LateCycle US Employment report going into the weekend. And we’re on the strong side of a worldwide selloff in both stocks and long-term bond yields this morning.


As Cam said in the post-game press conference: “That’s it man – I sound like a broken record, but it’s the same old thing.” Global #Deflation of asset prices combined with US #GrowthSlowing into recessionary expectations needs to be risk managed.


Same Old Thing - Deflation cartoon 12.29.2014


Back to the Global Macro Grind


There comes a point in an economic cycle when the latest cycle factors (employment and consumption) start to slow. That’s when bad becomes bad. And there’s no amount of “Fed Easing” that can arrest that economic gravity. Newsflash: Fed is still tightening.


Friday’s Non-Farm Payroll (NFP) print of 151,000 may have been “decent” on the surface, but words like “good” and “decent” don’t register in our #process as relevant. Did the number get better or worse? That’s the only question that matters.


After peaking at +2.34% year-over-year growth in FEB of 2015, US NFP slowed (in rate of change terms) to 1.9% year-over-year in JAN 2016 and is primed to slow to its slowest rate of the cycle when it bumps up against that peak-cycle FEB comp next month.

*“Comp” = comparative period (vs. last year or whatever time-series you choose to analyze)


Since both the US Profit Cycle and GDP comps peaked in Q2 of 2015, you should get used to me writing about the same old thing for the next 5-6 months. That’s why we’re staying with the best big-liquid-long for that prevailing macro environment – The Long Bond.


Here’s how that boring old Long Bond (TLT) did in the face of a lot of other things not working last week:


  1. US 10yr Treasury Yield down another 8 basis points on the week (down 43 basis points YTD) to 1.84%
  2. US Dollar -2.7% on the week (one of its worst weeks in a year) to $96.95 on the US Dollar Index
  3. EUR/USD +3.1% week-over-week to +2.8% YTD
  4. Yen (vs. USD) +3.6% week-over-week to +2.9% YTD
  5. Commodities (CRB) Index down another -2.9% on the week to -8.1% YTD
  6. Oil (WTI) continued to crash, down another -7.8% on the week to -18.8% YTD
  7. Gold continued to rally +5.1% week-over-week to a league leading +10.6% YTD
  8. SP500 dropped another -3.1% week-over-week to a dismal -8.0% YTD
  9. Russell 2000 continued to crash, down another -4.8% on the week to -13.2% YTD
  10. Nasdaq underperformed both the SP500 and Russell, -5.4% on the week to -12.9% YTD


That last bit (Nasdaq) got de-fanged on Friday. When I said there will come a time in the US stock market when bad is bad, that was pretty much what I meant by that. Every “General” of the #LateCycle bull market gets shot.


Looking at that Breaking Bad reality from a US Equity Style Factor perspective:


  1. Top 25% Sales Growers led losers last week, closing down -4.8% to -12.1% YTD
  2. Top 25% EPS Growers dropped -4.0% week-over-week to -11.0% YTD
  3. High Beta Stocks lost another -3.7% last week, crashing to -14.7% YTD

*Mean Performance of Top Quintile vs. Bottom Quintile of SP500 Companies


In other words, if your competition was levered long High Beta and Growth (and averaging down throughout January, getting longer) last week, you made them look like the Denver Defense did to Carolina last night.


I realize that playing defense isn’t going to make you a “billionaire”, but it can win you a Championship. For those of us who believe that the name on the front of our jersey matters more than the one on the back, we’re cool with that.


You don’t just have to be in Cash and Long-term Treasuries to win the 2016 Alpha Bowl. You could have easily ran a net neutral exposure long/short US equity hedge fund and set yourself up with the following portfolio:


  1. Put a billion into Long Utilities (XLU) which were up another +2.5% last week to +7.6% YTD
  2. Put a billion on the short side of the Financials (XLF) which got sacked for another -3.5% loss last week (-12.1% YTD)


Why don’t any of these big time players in the league have this position on? Is it too boring? Or is consensus simply whining that “consensus is bearish” while they’re still positioned way too bullish?


The other consensus out there is classic #LateCycle and that’s that US consumption is still “good.” True. But the rate of change process point being missed here is that that factor has gone from great to good. And that’s bad.


Consumer Discretionary (XLY) stocks led US Equity Sector Style losers last week, closing down -5.3% on the week to -10.2% YTD. Yep. Same old thing as the consumer peaking and rolling over at the end of 2007, but with more leverage on the market side of that trade.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.80-1.94%



VIX 20.31-27.98
USD 96.07-98.26
EUR/USD 1.07-1.12
Oil (WTI) 28.83-34.36


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Same Old Thing - 02.08.16 Chart

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.

Euro, DAX and the UST 10YR

Client Talking Points


While there was a USD bounce on the jobs report having enough of what a #LateCycle Labor Economist (Yellen) might want to see to keep raising rates. The EUR/USD is +0.2% to start the week after one of its best weeks in a year at +3.1% week-over-week.


The DAX doesn’t like the Up Euro trade inasmuch as Japanese stocks didn’t like an Up Yen (+3.6% last week vs USD). The DAX is down another -1.9% this morning and remains in crash mode, down -26.5% from last year’s peak.


One of the few places to stay long and liquid remains the Long Bond. The UST 10YR Yield was down -8 basis points last week and is down another 2 basis points this morning to 1.82% - this is flattening the Yield Spread to a new cycle low of 110 basis points (10yr minus 2yr) and that’s one of the main reasons why the Financials (XLF) remain our favorite S&P Sector short.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The bond market understands #GrowthSlowing. So do Utilities (XLU), which is why XLU is leading S&P sub-sector performance in 2016. XLU is up +7.6% versus down -8.0% for the S&P 500. Stick with it on the long side.  


GIS remains one of analyst Howard Penney's top Long ideas in the Consumer Staples space. As we have continued to say, it boasts style factors ideal in turbulent times; high market cap, low beta and liquidity. While GIS is down year-to-date, it's held up very well against the broader stock market. GIS is down -4% versus down -8% for the S&P 500 in 2016.


GIS has been picking up steam, as the company is working to improve merchandising and advertising on core business. One of the initiatives is making a distinct effort to delve deeper into the natural and organic category. That will certainly help them a lot in the long run. More to come.


Down go growth expectations and down goes the yield curve. That's the latest from Macro markets last week and it plays right into our long Long-Term Treasuries (TLT) and short Junk Bonds (JNK) Investing Ideas.


The UST 10YR Yield declined another -9 basis points last week which helped boost TLT +1.1% on the week. In a healthy environment, bonds as an asset class go up in tandem, but JNK lost -0.9% on the week despite a falling yield curve. That’s because we’re NOT in an “all is good” environment. Credit spreads widen in turbulent times. This widening is the alpha-generating opportunity in long TLT, short JNK.

Three for the Road


Under 60 Seconds: LinkedIn’s Earnings Report $LNKD  https://app.hedgeye.com/insights/48998-under-60-seconds-linkedin-s-earnings-report … via @hedgeye



Be a voice, not an echo.

Albert Einstein                                    


The world’s largest producer of platinum, Anglo American Platinum Ltd. said profit fell 86% as it wrote down mines and operations by 14 billion rand ($876 million).

The Macro Show Replay | February 8, 2016


From Washington To Wall Street: What To Watch With JT Taylor


In this HedgeyeTV video, Potomac Research Group Senior Analyst JT Taylor takes a look at the key takeaways from Iowa, looks ahead into Tuesday's New Hampshire primary and discusses Martin Shkreli and Big Pharma being in policymakers' bulls-eye.

Early Look

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