TODAY’S S&P 500 SET-UP - March 28 2011

As we look at today’s set up for the S&P 500, the range is 40 points or -2.34% downside to 1283 and 0.70% upside to 1323.




As of the close yesterday we have 6 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.  The three sectors that remain Broken on TRADE are Financials, Technology and Utilities.   

  • One day: Dow +0.41%, S&P +0.32%, Nasdaq +0.24%, Russell +0.83%
  • Month-to-date: Dow (0.05%), S&P (1.01%), Nasdaq (1.41%), Russell +0.05%
  • Quarter/Year-to-date: Dow +5.55%, S&P +4.47%, Nasdaq +3.40%, Russell +5.13%
  • Sector Performance: Energy +0.90%, Materials +0.54%, Industrials +0.35%, Healthcare +0.28%, Consumer Discretionary +0.18%, Financials +0.28%, Tech +0.24%, Consumer Staples +0.00% and Utilities -0.03%




  • ADVANCE/DECLINE LINE: 939 (+2)  
  • VOLUME: NYSE 824.83 (-5.26%)
  • VIX:  17.91 -0.50% YTD PERFORMANCE: +0.90%
  • SPX PUT/CALL RATIO: 1.99 from 2.33 (-10.59%)


Treasuries were weaker for a seventh day despite significant MACRO headwinds.

  • TED SPREAD: 22.89 +0.153 (0.672%)
  • 3-MONTH T-BILL YIELD: 0.09%
  • 10-Year: 3.46 from 3.42
  • YIELD CURVE: 2.67 from 2.70


  • 8:30 a.m.: Personal spending, est. 0.5%, prior 0.2%
  • 8:30 a.m.: Personal income, est. 0.4%, prior 1.0%
  • 10 a.m.: Pending home sales, est. M/m 0.0%, prior (-2.8%)
  • 10:30 a.m.: Dallas Fed Manufacturing, est. 17.6, prior 17.5
  • 11 a.m.: Export inspections (corn, wheat, soybeans)
  • 11:30 a.m.: U.S. to sell $32b in 3-mo. bills, $30b in 6-mo. bills
  • 12:40 p.m.: Fed’s Lockhart to speak on U.S. economy in Atlanta
  • 1 p.m.: U.S. to sell $35b in 2-year notes
  • 3:40 p.m./4 p.m.: Fed’s Evans speaks in South Carolina
  • 6 p.m.: Fed’s Rosengren speaks in Boston


  • Libyan rebel forces advance westward with support from NATO air strikes targeting Sirte, Muammar Qaddafi’s hometown hours after the Western alliance agrees to take command of military operations from the U.S.
  • The highest radiation levels so far at the crippled nuclear Japanese power plant may have come from a meltdown of nuclear fuel 
  • Portuguese President Anibal Cavaco Silva may call early elections for June 


  • CRB: 359.57 +0.30% YTD: +8.04%  
  • Oil: 105.40 -0.19%; YTD: +12.20% (trading +0.48% in the AM)
  • COPPER: 441.90 -0.12%; YTD: -2.15% (trading -1.66% in the AM)  
  • GOLD: 1,428.75 -0.34%; YTD: -0.18% (trading -0.90% in the AM)  


  • Rice Planting in Fukushima May Be Abandoned Amid Soil Tainted by Radiation
  • Cotton Rally Peaking as Record Crop Means First Stockpile Gain Since 2007
  • Commodities Retreat for Second Day on Japanese Radiation, Merkel's Setback
  • Oil Drops for a Third Day in New York Following Victories By Libyan Rebels
  • Aluminum Stockpiles Climb on Two Locations as Demand Rising: Chart of Day
  • Copper Falls Most in Two Weeks as Japanese Carmakers May Suspend Activity
  • Wheat, Corn Gain as Japan May Boost Imports Amid Radioactive Contamination
  • Gold Declines on Rally to Record Price, Signs of Improving Economy in U.S.
  • Cocoa May Gain as Ivory Coast Unrest Heightens Shortage Risk; Coffee Falls
  • Qaddafi Has $7 Billion of Bullion to Fund War Against Rebels: Chart of Day
  • Mugabe Vows to Force Foreign Mining Companies  to Sell Stakes in Zimbabwe
  • Posco Extends Gains After Saying It May Raise Steel Prices as Costs Climb
  • Hedge Funds Boost Bullish Bets on Gas Most in Three Months: Energy Markets
  • Corn, Soybeans May Climb This Week on Stockpile Speculation, Survey Showss


  • EURO: 1.4088 -0.70% (trading -0.27% in the AM)
  • DOLLAR: 76.217 0.74% (trading +0.18% in the AM) 


According to the Hedgeye models both the FTSE and the DAX remain bearish from an intermediate-term TREND perspective; this is new.  No major MACRO events today.

  • United Kingdom: +0.10%
  • Germany: -0.16%
  • France: +0.12%
  • Spain: +0.18%
  • Greece -0.36%
  • Italy: +0.10%


Japan down overnight and has at least another -8.5% downside from here; China remains bullish, up for the 6th of last 7 days.  We are currently long CAF.      

  • Japan: -0.60%
  • Hang Seng: -0.39%
  • Australia -0.19%
  • China: +0.21%
  • India: +0.68%
  • Taiwan: -0.67%
  • South Korea +0.11%



Howard Penney

Managing Director



CNBC VIDEO: Low Volatility Market Levitation

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The Macau Metro Monitor, March 28, 2011



IM sees VIP revenues continuing to outpace mass revenues and that Galaxy Macau will open in a saturated mass market.  The catalysts for mass growth have been muted so far this year--visitation has, more or less, stabilized; infrastructure projects (e.g. Guangzhou-Zhuhai railway line) won't be completed until later this year; and the marketing campaigns of Macau's casinos, with the exception of SJM's 3rd party casinos, haven't reached many destinations beyond Guangdong.


The unemployment rate for December 2010 - February 2011 was 2.8%, up by 0.1% point over the previous period (November 2010 - January 2011).  Total labor force was 334,000 in the period and the labor force participation rate stood at 71.6%, up by 0.2% point from the previous period.  Employment of Hotels, Restaurants & Similar Activities and the Gaming Sector saw an increase.



Macau's 2010 real GDP rose 26.2% to MOP 217BN (US$27.2BN). Per-capita GDP is US$ 49,745.  Total visitor arrivals increased by 14.8% in 2010.



According to the NUS Singapore Residential Price Index, private home prices in Singapore fell 0.4% from January.



Pansy Ho will replace Patrick Huen Wing Ming as Stanley Ho Group's representative on the supervisory board of BCP bank starting at the bank's next annual general meeting on April 18.  Her term will end in 2013.

The Stanley Ho Group includes Stanley Ho's 0.64% share in BCP, plus STDM's 1.62% stake.

CHART OF THE DAY: The Gov't Says There's No Inflation...



CHART OF THE DAY: The Gov't Says There's No Inflation...   -  chart

Instrument of Plunder

This note was originally published at 8am on March 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It would be impossible, therefore, to introduce into society a greater change and a greater evil than this – the conversion of the law into an instrument of plunder.”

-Frederic Bastiat


Bastiat wrote that in his treatise on individual liberties titled “The Law” in 1850. If you are in the business of having an open mind and teaching yourself alternative economic frameworks to the Keynesian Kingdom of thought, I highly recommend taking the time to read it.


I certainly don’t agree with everything Bastiat wrote. Nor do I disagree with everything Keynes wrote. What I’ve tasked myself with in writing to you each morning is exploring my interests in markets out loud while maintaining some sense of a moral compass. My Mom inspired me to do that.


Anytime one uses the words “moral” and “interest” together in writing something to Washington/Wall Street, one must tread carefully. When one considers America’s Declaration of Independence and the principles embedded in the Constitution however, one must not contradict our high society’s self-interested group-think with the underpinnings of our citizenry’s morality.


It’s only fitting to ask this question today, because on this day in 1775 an American patriot by the name of Patrick Henry delivered a famous speech in defense of liberty to the Virginia Convention when he proclaimed, “Give me liberty or give me death.”


I’m too self-centered to ask for death over liberty this morning, but I will remind those who are begging for bailouts in order to get themselves paid that this country’s new Transparency & Accountability Tools (YouTube, Twitter, etc.) will most likely smoke you out of your hole of contradiction.


If only because he was born early enough to say it first, Bastiat nailed this fundamental point down early in “The Law” when he wrote:


“When the law and morality are in contradiction to each other, the citizen finds himself in the cruel alternative of either losing his moral sense, or of losing his respect for the law.” (Bastiat, “The Law”, page 7)


When I think about that quote and the timing of revolutionary event risk in this world, I just can’t stop thinking. I do not profess to have the answers to all of this, but I can definitely tell these Government People what not to do. Stop compromising the “fairness” and “free-ness” of market systems by making new laws that implicitly choose winners and losers.


Back to the grind…


As always, this morning’s Global Macro news-flow is multi-factor and multi-duration. In summary, I think the points I am about to rattle off speak pointedly to the Instruments of Plunder being used by Big Government Interventionists who fundamentally believe issuing Fiat Fool paper is the best path to prosperity:

  1. USA: The US Dollar Index continues to hit fresh YTD lows – down again for the week-to-date, and down for 10 of the last 13 weeks
  2. JAPAN: Japan announced that the damage is going to cost at least 25 TRILLION Yen – 25,000,000,000,000 – that’s a lot of Yens
  3. EUROPE: Portugal’s government is on the brink as Eurostat questions the credibility of their numbers and Portugal’s PM may resign

Of course, there is both causality and correlation being imputed into market prices on these factors across durations:

  1. USA: The bond market smells The Bernank considering QG3 (Treasuries up) and the stock market sees GDP Growth Slowing
  2. JAPAN: The stock market failed to overcome our immediate-term TRADE line of resistance (9,719), closing down -1.7% overnight
  3. EUROPE: British bonds continue to be the recipient of sobriety (implementing austerity with credibility) while Portugal earns a P for PIG

Then you have countries with pseudo-conservative fiscal and monetary policy getting less confident in US, Japanese, and European stock markets as Price Volatility ramps (so they invest more at home):

  1. CHINA: Continues to see capital pour into the Chinese Yuan (making new highs at 6.55) and flow-through to Chinese stocks (we’re long CAF)
  2. CANADA: Continues to benefit from low-geopolitical risks and high resource exposures to oil and precious metals (we’re long FXC and GLD)
  3. NORWAY: Continues to see its stock market trade in the green for the YTD as raising interest rates and long-exposure to Petro-Dollars helps

Finally, you have SP500 and WTI Crude Oil futures whipping around like Pac-Man attempting to absorb all of this and stay ahead of what some Central Planner With Tan Socks at the Fed is going to do next.


What I’m going to do this morning is at least consistent. That usually starts with what I am not going to do – and one of those things is not cheering on Big Government Intervention and using the US Dollar as an Instrument of Plunder. All that does is drive The Inflation and The Price Volatility higher. After seeing the globally interconnected “Black Swans” that were born out of the early 2008 US Dollar destruction, I’ve seen enough of that.


From an asset allocation perspective, this week I’ve sold all of my US Equity exposure (Energy and Healthcare – XLE and XLV), ramped up my allocation to Fixed Income to 9% (bought long term US Treasuries yesterday), and have taken my CASH position back up to 55%.


If you are a Central Planner looking to protect the liberties and properties of The People, Bastiat said “it is absolutely necessary that this question of legal plunder should be determined, and there are only three solutions of it:”

  1. When the few plunder the many.
  2. When everybody plunders everybody else.
  3. When nobody plunders anybody.

My solution remains. For starters, just stop. Stop what you are doing with The Inflation policy to enrich the few. The money isn’t worth it to me.


My immediate-term support and resistance levels for WTI crude oil are now $101.32 and $105.98, respectively. My immediate-term support and resistance levels for the SP500 are 1293 and 1310, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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