Joined Dec 4, 2012
319 Blog Posts

Update On Thoughts On $CMG and $LNKD

This was a quiet week for me on the site as I had some travel to NYC for a good portion of the week. Full schedule with dinners each day left little writing time. In fact, I am back there this week for some more meeting.

Looks like I might have found the holy grail research product that maps out the entire internet and maps all search and social media activity. Image channel check by the hour? Pretty cool stuff no doubt. I am going to see what they can produce for me on Chipotle and LinkeIn.

I will write more on this in the coming weeks as I get more up to speed on the this titanic shift in technology but for now I wanted to update on existing positions in Chipotle and LinkedIn.

Chipotle was recommended on April Fool’s Day at $465.15 and fell to $434.06 on Tuesday before climbing on an upgrade by JP Morgan. I can live with this as since mid March there have been 5 downgrades to this one upgrade. I am not playing for a $30 move to the downside. Rather I am playing for a “valeant move”.

I ventured into a Chipotle on 43rd and Fifth at peak lunch hour last week. It was busy but no line out the door. There was no one over the age of 40 in the place. They have lost that market. Earnings are due next week on April 26th after the close. The consensus is a loss of $-1.05 and revenues of $863.77 million. I expect a miss on both counts. That said watch for me to hedge the position with calls in case the stock takes off from here. Above $480 and I will use May calls to hedge the upside.

On to LinkedIn. In the last week, it has risen from $107 to its current price of $116.61. Thursday the target was lowered at Evercore from $155 to $135. Earnings are due on April 28th. Estimates are for $0.60 on earnings and revenues of $827.69 million. That said watch for me to hedge the position with calls like Chipotle in case the stock takes off from here. Above $120 and I will use May calls to hedge the upside.

Here is an update on my current recommendations, opened and closed on this website since I began to blog here in 2012.


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Doha And ECB Along With Obama Overseas Visits To Dominate The Week Ahead

1.Geopolitical and Fiscal Events. Monday sees Federal Reserve New York President William Dudley speak with no specific time listed as of this writing as does Federal Reserve Boston President Eric Rosengren at 7:00 p.m. EDT and Federal Reserve Minneapolis President Neel Kashkari at 12:30 p.m. EDT. Tuesday sees the Senate Banking Committee hold a hearing on Iran sanctions. Wednesday sees President Obama travel to Saudi Arabia. Thursday sees President Obama travel to Great Britain.

2.Economic Releases. Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and housing starts, existing home sales and leading indicators along with the Philadelphia Fed Survey.

3.Earnings Releases. Notable releases include PEP IBM JNJ PM KO QCOM GOOGL MSFT GE MCD.

Monday, April 18

Income Taxes are due for Federal, state and local.

Oil markets will be volatile post the Doha meeting today where efforts to freeze oil output are underway but Iran is refusing to cooperate.

The Reserve Bank of Australia (RBA) holds its latest policy announcement overnight.

Tuesday, April 19

March Housing Starts are due out at 8:30 a.m. EDT and are expected to come in at 1,170,000 from 1,178,000.

New York holds Republican and Democrat primaries.

The Senate Banking Committee holds a hearing on the role of sanctions under the Iran nuclear agreement.

Wednesday, April 20

March Existing Home Sales are due out at 8:30 a.m. EDT and is expected to rise to 5.30 million from 5.08 million.

President Obama attends a summit of the Gulf Cooperation Council in Saudi Arabia

Thursday, April 21

March Leading Indicators are due out at 10:00 a.m. EDT and are expected to rise to 0.4% from 0.1%.

The latest Philadelphia Fed Survey is due out at 8:30 a.m. EDT and is expected to fall to 9.9 from 12.4.

The European Central Bank (ECB) is out with its latest policy announcement at 7:45 a.m. EDT and no change is expected. A press conference follows at 8:30 a.m. EDT with ECB Head Mario Draghi.

President Obama goes from Saudi Arabia to Great Britain to meet with Prime Minister David Cameron over Brexit.

Brazil is closed for trading.

Friday, April 22

Passover begins and markets may see lighter trading than normal as Jews observe this holiday.

A Global Climate Change Treaty is expected to be signed at the United Nations for Earth Day.

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The Week That Was, A Little Shaky Like Jordan Spieth

The week that was saw very choppy action. Monday was lower as was Tuesday. Wednesday was higher. Thursday was lower. Friday was higher but gave up a big gain. More important Tuesday, Wednesday and Thursday all saw closing changes of +/-1%. This is the first time we have seen three consecutive days moving more than +/-1% since February 11th through 17th.

Winners for the week were health care and energy as well as materials. Utilities and financials were lower for the week.

For the week stock indexes were lower across the board. The S&P 500 fell -1.21%. The Russell 2000 fell -1.82%.

Each week I track the spread between stocks with a strong technical rank and those with a poor technical rank. Stocks with strong relative strength rose on average fell -1.10% and those with a weak relative strength fell -0.80%. The conclusion is that investors selling recent winners.

Intraday action was all over the place this past week after an up one ended April 1st and a down one the week ended March 24th. Our confidence score on the intraday action was 44% after a strong week last week at 76%. The range is typically between 10% and 90%. Last week was the first losing week since the week ended February 19th.

Most sectors struggled for the week. The worst sector was Energy as noted. For the month there are no sectors in the red. For the past three months, financials and healthcare are still in the red losing -4.4% and -7.7% respectively.
The big worry for this week is whether profit taking will continue as we head into April 15th when taxes are due, though a technicality does not make them due until Monday, April 18th.  Last week we noted often there is some seasonal weakness during this stretch and that seems to be coming into play.
We get a ton of fedspeak from the B Team, i.e. Federal Reserve District Presidents. Economic releases are modest this week. Earnings kick off Q1 earningsas Alcoa (AA) starts the onslaught. Though for the week things remain modest.
Since the FOMC announcement in March, the dollar initially moved lower than rallied through March 24th before moving to another lower lower this past Friday. The U.S. Dollar is struggled to hold at current levels and moved to a new low this week.

Treasuries led by TLT rose 1.02%. Corporates led by LQD rose 0.29% while high yield led by HYG rose 0.18%.
Emerging markets (EEM) fell by -2.25% last week. Meanwhile Europe (EFA) fell frationally by -0.16%. China (FXI) also struggled dropping -2.26%.

Conclusion: Investors shrugged off weakness three weeks ago and were buyers of stock post Yellen’s comments two weeks ago. Then struggled this week. Failure to get back above 2050 could bring 2000 into play.  The bottom line is the stock market is starting to look like Jordan Spieth’s golf game, rather shaky.

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The Week Ahead Again Dominated By Fedspeak

1.Geopolitical and Fiscal Events.

Monday sees Federal Reserve New York President William Dudley speak as does Federal Reserve Dallas President Rob Kaplan at 12:00 p.m. EDT. Also, Treasury Secretary Jack Lew speaks about the U.S. and global economy.

Tuesday sees Federal Reserve Philadelphia President Jeffrey Harker speak at 8:00 a.m. EDT followed by Federal Reserve San Francisco President John Williams at 3:00 p.m. EDT and then Federal Reserve Richmond President Jeffrey Lacker at 4:00 p.m. EDT. Last up on Tuesday the International Monetary Fund (IMF) issues its World Economic Outlook.

Wednesday sees the Federal Reserve issue its latest Beige Book. Wednesday sees Federal Reserve Atlanta President Dennis Lockhart speak at 10:00 a.m. EDT.

Thursday again sees Federal Reserve Atlanta President Dennis Lockhart speak at 10:00 a.m. EDT. Also, IMG Head Christine Lagarde speaks.

Friday sees Federal Reserve Chicago President Charles Evans speak about economic conditions and monetary policy at 11:30 a.m. EDT.

2.Economic Releases.

Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and PPI, retail sales, CPI, industrial production and Michigan Sentiment.

3.Earnings Releases.

Notable releases include AA OZRK CSX FAST JPM SNDK WFC TSM C RAI.

Monday, April 11

The latest NYSE and NASDAQ short interest data is due out after the close. The data reflects from March 10th through March 28th. During this period, the S&P 500 rose 2.39%.

Tuesday, April 12

The International Monetary Fund (IMF) issues its World Economic Outlook.

Wednesday, April 13

OPEC releases its Monthly Update at 7:30 a.m. EDT.

March PPI is due out at 8:30 a.m. EDT and is expected to rise to 0.3% from -0.2%.

March Retail Sales is due out at 8:30 a.m. EDT and is expected to rise to 0.1% from -0.1%.

The Bank of Canada is out with its latest interest rate decision at 10:00 a.m. EDT.

The latest Federal Reserve Open Beige Book is due out at 2:00 p.m. EDT.

Thursday, April 14

March CPI is due out at 8:30 a.m. EDT and is expected to rise to 0.2% from -0.2%.

IMF Head Christine Lagarde speaks on the Global Policy Agenda

China’s latest GDP reading is due out at 10:00 p.m. EDT.

Friday, April 15

The IMF and World Bank begin their spring meetings in Washington D.C.

March Industrial Production is due out at 9:15 a.m. EDT and is expected to rise to 0.0% from -0.5%.

April Michigan Sentiment is due out at 10:00 a.m. EDT and is expected to rise to 92 from 91.

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A Great Reason To Short LinkedIn $LNKD

Whenever a CEO of a publicly traded company calls up the analyst who downgraded his/her stock and bitch slaps him or her, that is a stock I want to short. This is a time tested rule that tends to reward very nicely.

So what CEO did that recently? Why none other than CEO of LinkedIn $LNKD Jeff Weiner. Apparently, Weiner called Morgan Stanley after they downgraded the stock on March 16th and caused quite a storm. On March 15th, the stock closed at $115.58 and on the 16th closed at $109.81 after hitting a low of $107.99.

The entire buyside and sellside that focuses on tech is aware of this temper tantrum. A miss this next quarter could send it into another free fall. The drop last quarter from $192.29 to $108.38 was pretty painful but could it be repeated on April 28th when it reports again.

No one likes a bully and in fact many hedgies know that the only way to treat a bully is to punch him in the face.

The stock peaked at $276.18  in February of 2015 and has been in free fall ever since. Clearly, LinkedIn is no Facebook. Hard to figure out why Weiner would be pissed about a drop of about $8 when it had fallen by almost $170 since last year.

There is no one short this name as its short ratio is 1.58. We may see shorts coming into this name when we get the next short interest data on April 11th after the close. Institutions are not buying the shares as the Erlanger Volume Swing (EVS) is still negative on a daily and weekly basis. A retest of $100 seems in order if not a move $60.14 which is where it traded in the first month after it came public.

I have recommended this as a short in the Erlanger Research Model Short Portfolio as well as the Consumer Tech Portfolio on March 14, 2016. Clearly, the Morgan Stanley analyst and me have great timing. Could LinkedIn be the next Twitter????

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Current Thinking Recent Posts

1.Since I wrote on Chipotle $CMG as a short idea last week nothing has changed my mind. In fact, my conviction has risen. Why? Jim Cramer is going to fight staying long all the way down. Second, during my daily reading, an article written by a restaurant industry expert nailed some of my thinking on Chipotle and went even further. Here is the link, http://bit.ly/1TAqJ34.

2.Today the Russell 2000 $IWM failed at its 61.80% retracement (1104.97) after moving above it last week. A week ago it was noted that this needed to become support. Unfortunately, it is now resistance again.

3.On March 24th, I noted that the Heikin Ashi Candle Stick had turned negative on $SPY. This negative trend lasted three sessions before turning green again last Tuesday through yesterday. Today it is back to red. This situation is troubling with the flip flopping between red and green.

4.The world has gotten normal again in the last couple of weeks where the shorts are falling and the longs climbing. The long/short tsunami is over for now. Worst case the spread between longs and shorts is minimal.

5,On March 10th, we wrote about an epic garbage rally in the energy patch $XLE $XES. That has played itself out and one can make more again shorting energy names as the price of crude starts to fall again.

6.My QPI Overbought/Oversold indicator is neutral right now so there is no advantage to the bulls or bears. That said, a sell signal was issue on Monday. Another weak day with a drop of 20 S&P points could see a new buy signal emerge.

7.Last my Advance/Decline Line Model peaked out on March 14th close and has gone from invested to cash. The model made a change that took us to cash earlier than expected at 2037.05. Currently, we are only 8 points away from that level.

As markets reach oversold status again, then prepare your shopping list and take advantage of the rise in volatility. Markets are starting to deteriorate and we need  to pay attention to the increasing noise.




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The Week Ahead Will Be Dominated By Fedspeak, IMFspeak & ECBspeak

1.Geopolitical and Fiscal Events.

Monday sees Federal Reserve Minneapolis President Neel Kashkari speaks at a town hall meeting on too big to fail on Monday night. Also, Federal Reserve Boston President Eric Rosengren speaks about cyber security and financial stability at 9:15 a.m. EDT.

Tuesday sees Federal Reserve Chicago President Charlie Evans speak overnight in Hong Kong.

Wednesday sees International Monetary Fund (IMF) Head Christine Lagarde speak at the Women in the World Summit. Also, on Wednesday Federal Reserve Cleveland President Loretta Mester speaks at 12:20 p.m EDT and after the close Federal Reserve Dallas President Rob Kaplan speaks.

Thursday sees Federal Reserve Chairman Janet Yellen speak alongside with former Federal Reserve Chairmen Bernanke, Greenspan and Volcker at 5:30 p.m. EDT. Also on Thursday ECB Head Mario Draghi speaks. Thursday night sees Kansas City Federal Reserve President Esther George speak about the economy.

Friday sees Federal Reserve Dallas President Rob Kaplan speak at 9:30 a.m. EDT.

2.Economic Releases.

Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and factory orders with ISM Nonmanufacturing Index.

3.Earnings Releases. ]

Notable releases include WBA DRI MON STZ GPN BBBY CAG KMX RAD PSMT.

Monday, April 4

February Factory Orders are due out at 10:00 a.m. EDT and is expected to drop to -1.7% from 1.6%.

Markets are closed in Hong Kong and China.

The Reserve Bank of Australia (RBA) is out with its latest interest rate decision on Monday night.

Tuesday, April 5

March ISM Nonmanufacturing Index is due out at 10:00 a.m. EDT and is expected to rise to 54 from 53.4.

Wisconsin holds primaries for both the Republicans and Democrats.

Wednesday, April 6

The latest Federal Reserve Open Market Committee (FOMC) minutes are due out at 2:00 p.m. EDT.

Thursday, April 7

Federal Reserve Chairman Janet Yellen speaks alongside former Federal Reserve Chairmen Bernanke, Greenspan and Volcker after the close.

European Central Bank (ECB) Head Mario Draghi speaks about the European economy and current financial situation. No set time yet that we can find. We will alert you when we get this data point.

The International Monetary Fund (IMF) releases its latest World Economic Outlook.

Friday, April 8

Markets are closed in India.

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Chipotle Is Now Taco Blow (SELL/SHORT)

Chipotle Mexican Grill $CMG is screwed that is the bottom line and this will be my best short idea in the last couple years. Next week I will detail a short I put on at $9 and covered  for $0.01. I never thought that would go to a penny but it did. Many think Chipotle will never drop to $400 or $300 or $200. But it will. This is a short Ax would go after.

In one of our newsletters, I wrote up Chipolte as a short idea on December 30 rode it down into the January low and did not cover. Felt some pain into the rally into early March. Now I am confident this is the beginning of the end for the stock. Why? I will detail below but first some background on why I like this as a short.

Chipotle has some 1,900 restaurants in the United States that serve its customer Mexican food that is considered to be different from Taco Bell or Qdoba in that the ingredients are locally sourced and sustainable.
The stock closed at $489.94 when I wrote it up and our upper target was $772.85 and the price target was $576.35 which is well above the current price. The lower bound was $442.77.  Beta is 0.27 so this is an ideal name to add as markets rebound from the recent lows and we sunset 2015 concerns. High beta shorts could be very risky IF the market rallies further.
In December, we noted that estimates for the current year (December 2015) are $15.51 and $16.39 for next year (December 2016). We think over time 2016 numbers are way too high and will move lower based on recent problems Chipotle has run into with eColi. The numbers for 2016 show growth of $0.88 or 5.67%. The P/E for next year is 29.89. It usually works to short a stock with a growth rate of 5.67% and a P/E of 29.89. If the P/E fell to the growth rate, then the stock is worth $92.93.  There is no dividend on this name and there never will be.
In December there were 6 strong buys, 10 buys, 16 holds and 1 underperform with no sells. So the potential exists for a HUGE number of downgrades to underpeform or sell. Since late November, there have been 10 firms to either change or reaffirm their ratings. Of these, there is only 1 buy. Goldman downgraded today.
Technically, $472.41, the April 28th, 2014 low, seems to be a good level of support. If that level is broken, then we are looking at $434.29 and then $233.82. As we write, the stock is at $465.98.
In December, Bloomberg Business Week featured the company on their cover. As we read the article, we realized this is a no brainer short idea. Why? Below we list the issues from the article and we would suggest you go read the article at http://www.bloomberg.com/features/2015-chipotle-food-safety-crisis.
1.The company is not trying to be cost effective as it battles the eColi battle. CFO Jack Hartung notes that they will be “very inefficient” in trying to control costs. That is lovely and the last thing you want to hear if long the stock.
2.The company has focused on focus integrity and now they may have to focus on food safety which will cost them more money. Again crushes margins.
3.Chipotle has pulled all estimates for 2016. Sellside firms like Goldman are throwing in the towel.
4.The company still plans to add some 220 to 235 new restaurants in 2016. NFW. They will cut this number.
5.Comparable same store sales are fallling from 16.8% in 2014 to 5.5% in 2015 and this will drop even more in 2016, maybe into the negative. Since we wrote in December, they have been putting up crappy numbers month after month.
6.Chipotle is seeing sporadic customers coming to stores less as well as frequent customers. not good.
When you compare Chipotle to Qboda you realize who Chipotle is being priced for perfection. Qdoba is part of Jack In The Box (JACK) which has 2200 Jack in The Box stores and 600 Qdoba. There are 2800 units under Jack of which 600 are Qdoba or roughly 21%. The total market cap of Jack is $2.77 billion. So we can multiply this by 21% to get a market cap for Qdoba of $581 million. 600 stores equals a per store market cap of $968,000 per store.
If you applied the same metric to Chipotle, it would have a market of $1.84 billion. Instead it has a market cap on a per store basis of $7,984,210. Unheard of.
Now they are getting into burgers. WTF. Tom Peters the author of In Search of Excellence notes that when a company fails to stick to its knitting it is time to run not walk away from the stock. The burger market is SOOOO OVERCROWDED with many new startups killing.
Mad Money Guru Jim Cramer who I really like and respect is making a huge mistake sticking with this name. His ego is getting in the way and he needs to realize that circumstances have changed and the company will never be its former self again. The move to burgers is the icing on the cake for this short.

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A Wild Quarter: Full Stats By Asset Class (A Must Read)

Here is the breakdown on the quarter. It was one filled with a ton of opportunities if you had a pair of them and a process on how to buy low and sell high or stay with what is working. More comments later tonight as I plug away into Job’s Friday.






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It’s Deja Vous All Over Again

After stocks fell hard in August and September, the Russell 2000 and $IWM rallied strongly in October. Since the February low, we have seen a similar rally especially when you review the retracement levels currently in place. This is uncanny.

A favorite tool of ours is the Fibonacci retracment levels for each period. In a retracement you draw a line from the peak to trough and then observe the retracement levels.

So from the June peak to September low, the Russell 2000 rallied to above of its 50% retracement and below the 61.80% retracement by late November. Then the selling began again.

[Image 1]

Now the Russell 2000 has had a similar rally to below its 61.80% retracement from the December high to February low. In fact, the Russell 2000 almost hit this level and missed it by one point.

[Image 2]

So a break below the 50% retracement at 1073.49 would give us a hint that trouble is brewing and the next corrective phase is on the horizon. If we can move above 1104.27 on the Russell 2000 then I will get more bullish. For now, a hedge position in the Russell 2000 makes complete sense.

Morning Matters Archi

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