The Grind: What's In My Notebook?

Another day, another grind…



  1. SP500 continues to hold immediate term TRADE support of 1127
  2. Range in my 3-day SPY probability model remains tight and trade-able
  3. Volatility (VIX) already shot up this week from where it should have (21 support) and is now immediate term TRADE overbought
  4. All 9 sectors in our SP500 Sector Risk Mgt model remain bullish from an immediate term TRADE perspective (XLF barely holding on however)
  5. Larry Summers is leaving
  6. US Housing Starts improved finally (month-over-month) to 598,000 (AUG) vs 541,000 (JUL)
  7. TED Spread remains very narrow at 14bps wide, showing little to no counterparty risk
  8. FTSE and DAX continue to trade bullish on both our TRADE and TREND durations – both look healthier than the SP500
  9. Brazil flashing positive divergences versus global equities this week and remains bullish TRADE and TREND despite Brazil’s inflation accelerating this wk
  10. Commodities (CRB Index) remain in a Bullish Formation (bullish across all 3 of our risk mgt durations: TRADE, TREND, and TAIL)
  11. Agricultural and “soft” commodities like cotton are leading the overall bullish trend in the CRB Index (energy is the drag)
  12. Gold maintains its Bullish Formation, making higher-highs and higher-lows in the face of the Fear of Government Trade
  13. China’s Premier Wen tells Groupthinkers in Washington like it is this week (ie a sharp 20-40% appreciation of the Yuan would blow things up)
  14.  Czech government issues a 2011 plan to cut deficit by 17%
  15. Russian government continues to cut spending and attempt to issue sovdebt in order to meet 2011 strategic plans 


  1. SP500 remains broken from an intermediate term TREND perspective w/ our “Walk The Line” level sustaining overhead resistance at 1144
  2. US stock market breadth continues to deteriorate (hyper early signals, but they aren’t the bullish factors they were 3 weeks ago)
  3. US stock market down days are led by the Financials (XLF) this week and the low-beta dividend trade (XLU) is flashing bullish again
  4. ABC Washington Post Consumer Confidence dove wk over wk back down to -46 vs -43 last week (2wks of not up despite stocks being up)
  5. MBA mortgage applications fall for the 2nd consecutive week to -3.3% this wk (this is one of our lead high-frequency US growth indicators)
  6. Jobless claims rise for the 1st week in 4, to 465,000, reminding risk managers that what we have here is JOBLESS STAGFLATION
  7. II Bullish to Bearish weekly indicators are now flashing one of the most bearish contrarian signals I have seen on immediate term TRADE basis ever
  8. US Existing Homes Inventory drops from 12.5 months to 11.6; that’s still a gargantuan mountain of reported supply (ex-shadows)
  9. Baltic Dry Index is down for 8 days in a row
  10. Japanese equities were down when they traded this week
  11. Asian Equities that traded last night caught an inflation cold as the inflation data for AUG in Singapore, Malaysia, and HK all ramped month over month
  12. Eurozone Manufacturing PMI slowed in SEP to 54 from 55 in AUG
  13. Eurozone Manufacturing Services-PMI slowed in SEP to 54 from 56 in AUG
  14. Germany’s Manufacturing and Services PMIs tracked the same sequential rollover that the overall region did
  15. French and German Unions made headline news today; everything about Austerity isn’t kind
  16. Italy finally reported Q2 unemployment and it went up again to 8.5% vs 8.4% in Q1; Italy continues to concern us more and more on the margin
  17. Russian and Norwegian Equities are breaking down as the price of oil does
  18. Oil price has confirmed an intermediate term TREND line breakdown this week with critical TREND line resistance = $76.16/barrel
  19. Natural Gas remains in a Bearish Formation (bearish TRADE, TREND and TAIL) and looks like it wants to test $3.60
  20. Portugal is selling more and more sovereign debt at higher and higher yields; this won’t end well
  21. Greek stocks look horrendous again this week despite Papandreaou doing roadshows in America
  22. US Treasury yields continue to break down to lower-lows across the curve with 2-yr yields hitting all time lows
  23. Yield Spread (10s minus 2s) has compressed 17bps week to date (explains why XLF (Financials) is flashing another negative divergence vs SPY today
  24. US Dollar is breaking below APR and AUG lows; pervasive BURNING OF THE BUCK becomes a bad thing for globally interconnected risk
  25. US Rumor Mill chasing about everyone buying everyone has yielded ZERO takeouts of the 69 we observed as “rumors” this week; sad 

Time is running out on both September month end and Q3. There are performance problems in our industry and I think this reality combined with a liquidity squeeze to cover shorts has kept this market from going down this week. That said, it hasn’t gone up either – and that is new. So are the DATA and PRICES tilting demonstrably to the bearish side (relative to where they were 3 weeks ago) in my notebook.


As a result, I continue to A) take down gross invested exposure in the Hedgeye Asset Allocation Model and B) sell longs in our Hedgeye Portfolio. On a weak market open today, I covered 3 short positions (WYNN, HOT , and CRI) and bought 1 long (DBA). I plan on staying in a low-gross-exposure position and at the same time aggressively trading (or managing risk around) short positions for the next few weeks. I am increasingly worried about October.




Keith R. McCullough
Chief Executive Officer


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