THE GRIND: Sept 28, 2010

THE GRIND: Sept 28, 2010 - Notebook Image Hedgeye

Another day, another grind…


THE GRIND: Sept 28, 2010 - Notebook Bullish


1.      SP500 remains bullish from an immediate term TRADE perspective with an important line of support at 1135.

2.      The RANGE in my SP500 3-day probability model remains very tight and trade-able at 35pts

3.      Yesterday’s down day came on a weak volume study (as opposed to UP volume on DOWN days which is the TREND)

4.      All 9 sectors in our S&P Sector Risk Mgt model remain bullish from an immediate term TRADE perspective

5.      M&A continues to see more rumors than realities but Unilever for Alberto Culver yesterday was at least true

6.      China had 21 banks agree to sell loans on China’s interbank market = 1st time the govt allowed these transactions = liquidity

7.      Vietnam reported an accelerating sequential q/q GDP growth # for Q3 last night at +7.2% y/y vs. +6.4% in Q2

8.      German consumer confidence (OCT) improved to 4.9 in the GFK report vs. 4.3 last

9.      German (DAX) and UK (FTSE) stocks continue flash positive global divergences (bullish TRADE and TREND)

10.  Euro and British Pound continue to be bullish on both TRADE and TREND (we are long Pounds versus short USD)

11.  Commodities (CRB Index) continue higher in the face of a US Dollar debasement (inverse correlations on immediate term TRADE duration high)

12.  Gold is holding a very immediate term TRADE line of important price momentum of $1285

13.  Copper continues to trade in a Bullish Formation (bullish TRADE, TREND, and TAIL)

14.  Agricultural and soft commodities continue to make higher-highs and higher-lows (Bullish Formations)

15.  Israel joins an expanding list of countries who see global inflation re-accelerating for what it is and raises interest rates to 2% this morning


THE GRIND: Sept 28, 2010 - Notebook Bearish


1.      SP500 is broken again from an intermediate term TREND perspective (resistance = 1144)

2.      Volatility (VIX) continues to trade with an extremely high inverse correlation to the SP500 with TREND line support for the VIX at 20.96

3.      Inclusive of this morning’s weakness, the SP500 is actually down for 5 out of the last 6 trading days (market breadth deteriorating)

4.      Financials (XLF) remain the only sector in the SP500 (of the 9 we model top down daily) that’s bearish from a TREND perspective

5.      Yield Spread (10s to 2s) continues to compress this week versus last and remains a bearish headwind for US Financials earnings

6.      High Yield is trading within 7bps of its April 2010 highs at 8.25%; this is a contrarian indicator, big time

7.      Levered Loan Index at 15.13 is 5bps away from its late April early May highs; another contrarian (bearish) indicator for equities

8.      Case Shiller Prices (JUL) rollover again sequentially (month over month)

9.      US Consumer confidence comes in at a bomb 48.5 for SEP versus 53.2 AUG despite CNBC cheering the stock market higher

10.  “Republican House” finds its way onto the cover of Barron’s = consensus bullish catalyst now

11.  M&A rumors haven’t been this frothy since September of 2007 (we’ve counted 67 alleged “takeouts” that haven’t occurred)

12.  US Dollar Index continues to burn at the stake of QE hope; down now for the 15th of the last 18 weeks and Washington doesn’t care

13.  US Treasury Yields are in a Bearish Formation across the curve (2yr yield TRADE resist = 0.51%) = bearish signal for US economic growth

14.  Chinese stocks have closed down for 5 out of the last 7 days and the Shanghai Composite is now broken on immediate term TRADE duration

15.  Japanese stocks continue to be the armpit that is long term QE; Nikkei down 3 of last 4 days and down -10% for 2010 todate

16.  Japanese exports (AUG) hammered sequentially down to +15.3% y/y vs +23.5% y/y in JUL

17.  Japan’s Bureaucrats calling for another 4.6 TRILLION Yen in stimulus and proposing to pay for it by raising taxes this time?

18.  Spain’s IBEX is testing a TRADE line breakdown for the first time in months; support line could become resistance at 10,499

19.  Italy’s CDS continues to push higher at 205bps and remains the country with the most downside relative to consensus (we’re short EWI)

20.  European CDS continues to push wider on the heels of Greek Equities getting smoked (down -12% since 1st week of September with SPY +9%)

21.  Russian equities weakening in the face of Medvedev firing the longstanding (18 year) mayor of Moscow

22.  Romania’s Interior Minister resigns in the face of austerity implementation

23.  Sri Lanka is now issuing sovereign debt ($6B worth) and markets there are cheering it on?

24.  Dubai says “we are back”

 
Altogether the fundamental research DATA continues to tilt to the bearish side (as of the last 6 trading days) but PRICES are not entirely confirming how bad the DATA has become. I think a lot of this has to do with severe performance problems in the US hedge fund business into month and quarter end, so we may need to close an eye or two here for the next 72 hours before some of the smoke signals clear.
 
In the Hedgeye Portfolio we are still giving the benefit of the doubt to the bulls (LONGS = 12, SHORTS = 9), but I am increasingly concerned about October.
 
KM
 
Keith R. McCullough
Chief Executive Officer
HEDGEYE RISK MANAGEMENT

THE GRIND: Sept 28, 2010 - HE Durations