THE HEDGEYE DAILY OUTLOOK
TODAY’S S&P 500 SET-UP - October 20, 2011
Exotic TAILS notwithstanding (18 tigers and 8 bears on the loose in Ohio yesterday), we know this market’s long-term TAIL is broken (1266) – so, all we have to do now is continue to manage risk around the immediate (TRADE) to intermediate-term (TREND) range. As we look at today’s set up for the S&P 500, the range is 20 points or -0.73% downside to 1201 and 0.92% upside to 1221.
SECTOR AND GLOBAL PERFORMANCE
From an immediate-term TRADE perspective, today’s selloff doesn’t change the fact that all 9 sectors (and the SP500 itself) remain bullish. This is healthy until it isn’t. A close below 1201 tomorrow would change this setup. Holding above it would be bullish.
Another improving TREND (intermediate-term) is that 4 of 9 Sectors are now bullish on that duration: Consumer Discretionary (XLY), Utilities (XLK), Tech (XLK), and Consumer Staples (XLP). We like those Sectors in that order. Consumer Discretionary will be the most direct beneficiary of a Strong Dollar as it will continue to “Deflate The Inflation.”
EQUITY SENTIMENT:
- ADVANCE/DECLINE LINE: -1354 (-3428)
- VOLUME: NYSE 964.04 (-11.17%)
- VIX: 34.44 +9.13% YTD PERFORMANCE: +94.03%
- SPX PUT/CALL RATIO: 1.78 from 1.64 (+8.80%)
CREDIT/ECONOMIC MARKET LOOK:
- TED SPREAD: 39.13
- 3-MONTH T-BILL YIELD: 0.03%
- 10-Year: 2.18 from 2.19
- YIELD CURVE: 1.90 from 1.91
MACRO DATA POINTS (Bloomberg Estimates):
- 8:30 a.m.: Jobless claims, est. 400k, prior 404k
- 9:45 a.m.: Bloomberg Consumer Comfort, prior (-50.8)
- 10 a.m.: Leading indicators, est. 0.2%, prior (-17.5)
- 10 a.m.: Existing home sales, est. 4.91m, down 2.5%
- 10 a.m.: Freddie Mac mortgage rates
- 10:15 a.m.: Fed’s Bullard speaks in St. Louis
- 10:30 a.m.: EIA Natural Gas storage
- Noon: Fed’s Lockhart moderates panel on economy in Atlanta
- 12:50 p.m.: Fed’s Pianalto speaks in Toledo, Ohio
- 1 p.m.: U.S. to sell $7b 30-yr TIPS (reopen)
- 2 p.m.: Treasury’s Brainard testifies to U.S. Senate committee
- 6 p.m.: Fed’s Tarullo speaks at Columbia in NYC
- 7:45 p.m.: Fed’s Kocherlakota speaks on economic education in Minneapolis
WHAT TO WATCH:
- Yahoo! isn’t necessarily up for sale, co-founder Jerry Yang said; Alibaba CEO reiterates he’s interested in buying the company
- Groupon said to be in talks to sell shares in IPO valuing co. at ~$12b
- Sales of existing U.S. homes probably declined 2.5% to 4.91m annual rate in Sept., economists’ forecast ahead of today’s report
- SEC said to be trying to determine if SAC Capital used insider information to profit from J&J’s 2009 takeover of Cougar Biotechnology, WSJ says
COMMODITY/GROWTH EXPECTATION
COMMODITIES – we’ve called for the Correlation Crash to continue and that’s plainly obvious now with Gold chasing Copper (albeit with a lower beta); both remain broken; Copper down -2.9% this morning is immediate-term TRADE oversold, but has moved back into the down -30% since July zone; not good – neither is Gold’s TREND resistance ($1685) fortifying itself
MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:
- Pamela Anderson Champions Palladium as Gold Prices Soar: Retail
- Iron’s Worst Rout in 15 Months May Deepen as China Slows
- Silver Bear Market Seen Ending on Europe Crisis: Commodities
- China Love of U.S. Cherries Fuels Cool-Cargo Boom: Freight
- Gold Falls to Two-Week Low as Gains in the Dollar Curb Demand
- EU Targets Commodities, High-Frequency Trading in Market Law
- Coal Gridlock Heralds Two-Year High Asia Premium: Energy Markets
- Zambia Investors Say Copper Boom to Extend as Sata No Castro
- Copper Drops for a Fourth Day on European Debt-Crisis Concern
- Chinese Aluminum Supply Jump 30% in 3 Weeks, Signaling Slump
- Oil Drops a Second Day on Europe Outlook; Brent Premium Widens
- Rio Tinto Makes $567 Million Offer for Hathor to Trump Cameco
- Gold Prices May Extend Losses on Bear Flag: Technical Analysis
- EU Seeks Curbs on Commodity Derivatives, High-Frequency Trading
- Freeport Says Grasberg Mine Operating at Two-Thirds Capacity
- Agnico Plunges After Halting Canadian Gold Mine on Flooding
- Commodities trading suffers as French banks curb credit
- Thailand, Indonesia ‘Closely Monitoring’ Rubber Decline
- Oil Rebounds on Speculation EU Agreement Will Help Fight Crisis
CURRENCIES
EUROPEAN MARKETS
RUSSIA – consistently flashing negative divergences vs the focus European markets (DAX, CAC, Greece, etc) this week; this tells me that A) I’m right on the USD TREND and B) right on Oil remaining a bearish TAIL/TREND; Petrodollars drive the RTSI and its crashing – down -34% since May.
ASIAN MARKETS
ASIA – the Hang Seng was down -1.8% again last night (China down -1.9% testing new lows) and the move was consequential as the only remaining line of support (18215) was snapped again on the downside. As the world focuses on 1 thing (Europe) you tend to get paid to focus on everything else that doesn’t cease to exist – Asian Growth Slowing is a big one.
MIDDLE EAST
The Hedgeye Macro Team
Howard Penney
Managing Director