Financials (XLF): Stuffed Like Lehman's "Level 3" Book

We wanted to stay clear of the Luskin, Gartman, triple bullish Deutsche Bank buy call on the US Financials, so we advised you to do the same. Predictably, the bullish narrative rolled into to the Financials right at the goal line, then ran head first into a Canadian Football League goal post.

The goal line for the consensus crowd is the 50 day moving average (see chart). I don't use the 50 day to make capital decisions, but it's important to watch behavior around that line. It’s kind of like watching pigeons flock to bread crumbs.

The XLF was down -6.3% today, going out at 21.07. If this US Financials index breaks my support line at 20.58, and closes there, I see 23-24% of expeditious downside.

(chart courtesy of

The Russian Bear Hunter Chart

Russia's RTSI Index is clearly breaking down.
Andrew Barber, Director

Beijing's composite Air Pollution Index

The South China Morning Post’s, Al Guo, reported on the alarmingly bad air quality scores Beijing is currently printing. The Air Pollution Index hit 89 yesterday and “according to the index, compiled by the Beijing Municipal Environmental Protection Bureau, all but five remote suburbs in the city had air pollution levels higher than 80 yesterday, with a couple of districts registering up to 99. Any figure recorded above 100 is considered harmful to health.”

Bear in mind, the Chinese call this “cleaning it up” before the Olympics.

Never mind that I am long the Chinese ETF (FXI). This is just plain bad.
Picture from the SCMP Article, Yesterday at the Forbidden City

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Potash (POT): Ugly Chart Of the Week...

Here's another "Fast Money" chart that's breaking down, big time. POT couldn’t rally today on a solid earnings report, and as long as it can't climb back above the $204.96 line, it won’t be rallying tomorrow either.

I have downside support at $149.96.
POT breaking down (Research Edge Chart)

Eye On Leadership: Bon J-Obama In Berlin!

Barack Obama is being received like a rock star as he gives a speech right now to a massive crowd in Berlin, Germany.

Almost 75% of Germans polled said they'd like to see him as the next American President. Breaking down Washington and Wall Street's walls is all one and the same to me.

This is not about individuals. This is about changing broken organizations...
"Bon J-Obama"

EYE on Operating Leases

CMG, CAKE and PFCB will all face higher operating lease payments going forward. Each of these companies reported increased margin pressure in 2Q, and these increased expenses add the risk of further complicating margins. The chart below looks at the companies’ minimum operating lease obligations in future years relative to their reported 2007 minimum rent expense.
  • Their high unit growth strategies have likely pushed their respective management teams to compromise their real estate standards, leading to less favorable lease terms. For reference, as of their most recent 10-Ks, JBX, DRI and EAT are all subject to operating lease obligations that decline each year.
  • CMG management addressed this issue on its conference call yesterday, saying:

    “Occupancy costs as a percentage of revenue were up during the quarter, primarily due to our opening proportionally more restaurants in more expensive, densely populated areas such as Boston, New York, Philly, Washington DC, Florida, and San Francisco. In addition to being much more expensive on a square footage basis, these sites typically have significantly higher non-cash straight-line rent expenses associated with them as we lock up these sites for the long term with cap rent escalation. In fact, half of the 20 basis point increase in the quarter is due to an increase in this non-cash straight-line rent. Of the total occupancy rent expense – occupancy expense in the quarter of about 1.6 million or 50 basis points is non-cash, straight-line rent related to future rent escalations. While these rent escalations are expensed today, they typically relate to escalations that are payable 5 to 20 years from today.”
Operating Lease Payments Relative to 2007 Expense


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