Client Talking Points


While industrial activity has stabilized against 13 months of negative comps, domestic service sector activity continues to slow off its mid-2015 highs. Headline ISM Services along with the Employment and New Orders components improved sequentially in March but the 9-month trend remains one of lower highs and lower lows.  On the Labor Front, the trend has been similar as yesterday’s JOLTS data for February showed Job Openings decline by -159K, continuing the 8-month retreat off the mid-2015 peak.  


Q1 earnings season kicks-off next week with the bulge bracket banks leading the way (JPM next Wednesday). If you think we’ll follow-up an awful Q4 2015 reporting season (S&P revs -4.0% Earnings -6.9%) with a rebound, think again. We won’t be lapping bad comps until at least Q3 of this year (reported in Q4). In Q1 of 2015, 8/10 sectors saw Y/Y earnings growth, and the one sector with awful earnings was energy, where WTI averaged $48.57 vs. $33.63 in Q1 0f this year. Don’t get excited about Q1 earnings season. It will be more of the same. #thecycle.  


Eurozone conflicted?  If the Brexit debate wasn’t enough, German Finance Minister Wolfgang Schaeuble is out saying  “It's a problem of our common currency union that we have ... an independent central bank, which conducts unified monetary policy for 19 member states that is less favorable for Germany than for other countries.”  While we’ve identified the ECB’s conflicted policy framework for years, it underlines just how quickly risk can form across Eurozone assets.  For the EUR/USD cross we continue to suggest trading the immediate term range, $1.11-$1.14.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

McDonald's (MCD) hit an all-time highs last week. "They can't chase Energy Charts today, so they're just dog-piling into our long calls on GIS and MCD," wrote Hedgeye CEO Keith McCullough on Friday.


We've said it before, McDonald's has all the style factors that we like during these turbulent macro market times; high market cap, low beta and liquidity. The stock is up 7.5% this year beating the S&P 500 by more than 600 bps. In August 2015, Restaurants analyst Howard Penney wrote that "2015 will be the last time this stock is below $100."


CME Group (CME) stock is among the small cohort of financial companies that benefit from volatile markets. With the exchange's open interest continuing to expand, which will drag trading volume higher, CME Group is one of the few lower beta longs that will hold up relatively better in the current environment.


The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, at over 111 million contracts. Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials.


Non-Farm payroll additions came in over +200 again (+215K to be exact) and private sector wage growth was also “good,” increasing +4.2% year-over-year on Friday. We’re most concerned with "better" or "worse" from a rate of change perspective. The non-farm payroll number is "less good" (i.e. "worse") from a year-over-year rate-of-change perspective. Growth in non-farm payrolls peaked in February 2015 at +2.3% year-over-year and the trend since then has been one of decline (+2.0% Y/Y for March 2016). And private sector salary and wage growth peaked on a year-over-year percent change basis in December of 2014.


We remain bullish on Long Bonds (TLT and ZROZ), Utilities (XLU) and short Junk Bonds (JNK). We expect more alpha after what was a great Q1, as the back-end of the Treasury curve continues to get flatter regardless of Fed rate hikes. We were alone in that camp, in December, when we first told you that a rate hike was in fact good for long-duration Treasury bonds. Stick with what's worked.


Here's the Q1 2016 Scorecard (data through 3/31):

  • TLT +8.3%
  • XLU +14.7%
  • JNK +1.0%
  • versus S&P 500 +0.7%

Three for the Road


**New Video | Game Over. Central Bankers Can’t Do Anymore… cc @KeithMcCullough



I'm not saying I'm gonna change the world, but I guarantee that I will spark the brain that will change the world.

Tupac Shakur


Alaska Airlines will acquire Virgin America for $2.6 billion after a short bidding war with JetBlue.

[UNLOCKED] Keith's Daily Trading Ranges

We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.


Subscribers now receive risk ranges for 20 tickers each day -  the last five of which are determined by what's flashing on Keith's screen and by what names subscribers are asking about. Click here to subscribe.


  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
1.83 1.70 1.73
S&P 500
2,020 2,077 2,045
Russell 2000
1,066 1,130 1,095
NASDAQ Composite
4,737 4,933 4,843
Nikkei 225 Index
15,590 16,640 15,723
German DAX Composite
9,508 9,798 9,563
Volatility Index
13.01 19.38 15.42
U.S. Dollar Index
94.01 95.99 94.64
1.11 1.14 1.14
Japanese Yen
110.19 112.95 110.29
Light Crude Oil Spot Price
35.09 38.12 36.56
Natural Gas Spot Price
1.84 2.05 1.94
Gold Spot Price
1,206 1,245 1,232
Copper Spot Price
2.10 2.23 2.14
Apple Inc.
104 112 109
560 609 586
McDonald's Inc.
122 128 127
Utilities Select Sector SPDR
48.06 50.13 48.67
Tesla Motors Inc.
219 257 255
General Motors Co.
29.15 30.99 29.60

Key Call-Outs (GDX, NEM, GG, ABX)

The extreme bearish to bullish reversal in sentiment YTD in gold happened quickly (Jan.-Feb.). The pace of relative bullishness has decelerated, but the market remains notably long of gold:

  • Gold is a chart with a story, and investors have repeatedly chased price on a lag. Gold has been a newsy item for the last month, AFTER the bullish move, and has since gone down on a 1-mth window (-3.6%) despite a 1) dovish pivot from the fed on growth and inflation; And, 2) a flatter curve and a weaker USD. Coincidentally historical USD/Gold correlations have broken down on that same window
  • Net Futures and Options Positioning is +2.3x/+2.3x Long on a 1Yr and 3Yr Z-Score Basis
  • After reaching the highest level of open interest since 2011 in March, the pace of open interest increases in all active futures months has slowed considerably, and is now flattening out. When put against the CFTC positioning, we know which way the outstanding OI is leaning
  • Option skew (prices investors are willing to pay for calls vs. puts in volatility terms) shows bullish sentiment, which like the CFTC positioning, is a classic indicator that chases price. Currently the surface is shaped exactly how it was in mid-October (upside calls more expensive than downside puts in volatility terms). The opposite shape was priced-in moving into 2016. Putting this chart next to the CFTC positioning chart shows the intermediate-term price risk to stretched positioning.   

Click HERE  for a link to our February note adding NEM to our best ideas short list. For the corresponding model and blackbook, feel free to ping us back directly.


Key Call-Outs (GDX, NEM, GG, ABX) - Gold Price vs. CFTC Net Positioning

Key Call-Outs (GDX, NEM, GG, ABX) - COMEX OI Build

Key Call-Outs (GDX, NEM, GG, ABX) - Vol Skew



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.

Cartoon of the Day: US Growth Stinks

Cartoon of the Day: US Growth Stinks - growth  cartoon 04.05.2016


"Unlike many strategists (who missed calling the cycle top in US Consumption, Employment, and Profits last year), we have stayed with The Cycle call we’ve had all along here in Q2," Hedgeye CEO Keith McCullough wrote today.

Game Over. Central Bankers Can’t Do Anymore

In this brief exchange on The Macro Show, Hedgeye Demography Sector Head Neil Howe and CEO Keith McCullough discuss how global markets are closing in on a critical monetary policy exhaustion end point. “Why don’t people accept that?” Howe asks. “[Central bankers] can’t do anymore!”


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.