• Navigate This Market Turbulence: All Hedgeye Research → 3 Months 66% Off

    Preserve. Protect. Grow. Former hedge fund manager and CEO Keith McCullough has successfully navigated the Dot Com Bust, Great Financial Crisis and Crash of 2020. Get 66% off the smartest investing insights money can buy.

Take nothing on its looks; take everything on evidence. There's no better rule.
- Charles Dickens, Great Expectations

On Friday, the S&P 500 closed at 1,087, down 0.8% on the day.  The S&P 500 down day on Friday came on a weak volume study, which is bullish on the margin.  This week once again will be highlighted with notable earnings announcements.   Apple Computer (AAPL) will start the week off after the close today.  AAPL’s stock is up more than 120% year-to-date and similar to Goldman Sachs last week, expectations are elevated.  AAPL’s ability to meet or beat these great expectations will set the market tone early this week.

On the macro front, October Michigan consumer sentiment fell to 69.4 from 73.5 in September; consensus expectations were for a slight pullback to 73.1.  Consistent with our view on the sentiment indicators, sentiment surrounding personal finances and the outlook for employment are cited as areas of increased concern. On the positive side the manufacturing sector continued to see improvement, as industrial production rose 0.7% month-to-month in September vs expectations for a 0.2% increase.

For the second day in a row, Consumer Staples (XLP) and Utilities (XLU) were the two best performing sectors as the beta trade seemed to take a bit of a breather.  On Friday, the consumer Staples had a strong day, so Keith shorted the XLP in the virtual portfolio. The sector also continues to benefit from the supermarket names following the stronger-than-expected Q3 results from SWY, which we believe will be short lived.   We shorted more KR on Friday.   See Eric Levine's notes on the SWY quarter.  It looks like someone has (or thinks they have) material information on KR that we definitely don't have! 

The momentum behind the “Currency Creditability Crisis” took a breather on Friday, as the dollar index finished up 0.2%, which, not surprisingly, led to a down day in the market.  The VIX declined for the tenth straight day (1.3%) and is now down 51% over the past six months, which has created a much more risk averse investing environment.

On Friday, six of the nine sectors outperformed the S&P 500, with two sectors rising on the day.  The three best performing sectors were Healthcare (XLV), Consumer Staples (XLP) and Utilities (XLU), while Materials (XLB), Technology (XLK) and Financials (XLF) were the bottom three.  The Financials (XLF) were the worst performer for a second straight session today.

Today, the set up for the S&P 500 is: TRADE (1,074) and TREND is positive (1001).   Day 6 of perfection - the Research Edge quantitative models have 9 of 9 sectors in the S&P 500 positive on TREND and 9 of 9 sectors are positive from the TRADE duration.         

The Research Edge Quant models have 1.5% upside and 1.0% downside in the S&P 500.  At the time of writing Equity futures are trading above fair value; the S&P 500 is trading +3.97, the NASDAQ is trading up 4.40 and the Dow Jones is trading up 23.78.  

The Research Edge MACRO team.

US Strategy – Great Expectations - S P500


US Strategy – Great Expectations - s pperf

US Strategy – Great Expectations - s plevels