On Friday, the S&P 500 closed at 1,071, up 0.6% on the day. Day five of the S&P 500’s rally as the momentum behind the recovery trade continued all week; volume was shockingly low.
Last week the S&P rose 4.5% as the MACRO calendar provided some positive momentum. The bullish tone stemmed from the ISM numbers on Monday and continued through Wednesday and Alcoa's relatively upbeat release into Thursday's better than expected jobless claims and retail reports. The catalysts in the coming week will be comprised of major earnings reports, which include: top banks JPMorgan, Goldman Sachs, Citigroup, and Bank of America, report this week along with Google, Southwest Airlines, Intel, IBM, General Electric, and Johnson & Johnson.
Friday’s portfolio activity included shorting the XHB – the Homebuilders ETF. We were the bulls on a Q2 housing turn last December. Now Keith and I are getting cautious on housing in 1H 2010. As rates head higher, access to capital tightening is not good for the early cycle home builders. Additionally, without help from Washington the housing market is not healthy enough to stand on its own two feet and the $8,000 tax credit is expected to expire at the end of November.
The dollar index was up 0.7% on the heels of Ben Bernanke's comments after recovering from a 14-month low hit Thursday. The VIX declined for the fifth straight day and is now down 14% over the past week.
As of Friday, four of the nine sectors outperformed the S&P 500, with every sector positive except Consumer Discretionary and Energy. The three best performing sectors were Healthcare (XLV), Financials (XLF) and Technology (XLK), while Energy (XLE), Materials (XLB) and Consumer Discretionary (XLY) were the bottom three. We are currently long the XLV, which we would expect to be buoyed this morning by the announcement from Onyx Pharmaceuticals that they are acquiring privately held Proteolix for $810MM.
Today, the set up for the S&P 500 is: TRADE (1,051) and TREND is positive (991). Day 1 of perfection - the Research Edge quantitative models have 9 of 9 sectors in the S&P500 positive on TREND and 9 of 9 sectors are positive from the TRADE duration.