EARLY LOOK: Walk The Line

“Because your mine, I walk the line.”

-Johnny Cash

EARLY LOOK: Walk The Line - chart2

_________________________________________________________________________________________

Since we introduced it at the beginning of July as our intermediate term TREND line of bearish resistance for Q3, it’s no secret that the 1144 line on the SP500 has been our line. Now that the SP500 has rallied sharply (+9.8%) from what we called immediate term TRADE support (1040), it’s time for me to walk the line.

Will I be bullish? Will I be bearish? Or will I be neither? I don’t have to make a call; I make calls when the probability in my math tells me to. I already made my selling moves yesterday and I will be accountable to them.

EARLY LOOK: Walk The Line - cash

It’s NFL season. This is a great time of year in America because it allows us to remind ourselves how real winners in this country behave. Professional athletes and their coaches like making calls too – unlike professional politicians of the Fiat Republic, they thrive on accountability.

Before the Monday Night Football game between the San Francisco 49ers and the New Orleans Saints, 49er head coach, Mike Singletary, made the call that “we will not try to stop Drew Brees – we will stop Drew Brees.”

After the game Brees said, “we won the game and that’s all that counts.”

Ultimately, this business is a lot like professional sports in that being right or wrong is really all that counts. This isn’t a charity. This isn’t a philanthropic venture. This is meat and potatoes bids versus asks. Take your position, and walk the line.

No matter where I go this morning, here I am. Here are the moves I made yesterday:

1.  09/20/2010 02:45 PM SHORTING XLY $33.34

We covered this short position on August 24th and now we'll put it back on as we are bearish on US Consumer Spending for the intermediate term TREND, from this price. Timing matters.

2.  09/20/2010 10:42 AM SELLING CAF $28.24

Chinese stocks have closed down for 4 consecutive days and have broken their immediate term TRADE line. Could Chinese growth slow in SEP vs AUG?

3.  09/20/2010 10:34 AM SELLING GLD $125.22

I said I was going to do it in this morning's Early Look, so I'm doing it - booking a gain here in gold as it is immediate term TRADE overbought.

4.  09/20/2010 10:28 AM COVERING HCBK $12.14

US Housing data this week won't be as much of a bomb (relative to expectations) as the AUG24th report was. We'll cover here and re-short later.

5.  09/20/2010 10:22 AM SELLING ASPS $27.48

Steiner remains bullish on ASPS for the intermediate term TREND, but it is finally overbought here from an immediate term TRADE perspective. Selling high.

6.  09/20/2010 10:16 AM SHORTING HOT $53.23

Jordan and I remain bearish on the market's intermediate term expectations for revpar growth. Shorting green.

In summary, one of the first takeaways you’ll have from these 6 position changes is how mixed the research reasoning is. That, Dear Fundamentalist Sir, is the hallmark of both chaos theory and how you apply it to a modern day risk management model. Managing risk has nothing to do with the certainty of your “valuation model” or your latest super-duper “one-on-one” with a company. It has everything to do with accepting uncertainty.

When I make a call, I immediately start trying to prove myself wrong. Each position in the Hedgeye Portfolio has to undergo a disciplined and repeatable line of examination every morning, afternoon, and night. If you want to have a position playing on my team, your research is mine.

Sounds hard core, because it is. We’re not here to sell our clients some broken Greek bond promise, CNBC advertising, or an investment banking fee. We’re here to win – and the best way to ensure that is to keep moving as the game does.

My immediate term and intermediate term lines of resistance (TRADE and TREND) are the same line this morning, 1144. It’s time to walk the line.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer


This note was originally published at 8am this morning, September 21, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK and PORTFOLIO IDEAS in real-time.