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A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs

Takeaway: Total market volume was down -24% versus the 1-month and 3-month average yesterday as the S&P 500 breached its all-time high.

A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs  - volume knob 

 

All-time high in the S&P 500 yesterday? 

 

Yep.

 

Meanwhile, US Equity Volume crashed. Here's analysis from our Macro team in a note sent to subscribers earlier today:

 

"Take a look at volume the last two trading days. We’re comfortable calling the nearly 2% move in the SPY Friday-Monday a “melt-up”. Market and Total exchange volume on Friday was down -8% and -7% vs. 1-month averages on Friday and yesterday volume was much lighter still. Total market volume was down -24% vs. 1-month averages and total exchange volume was down -19% vs. 1-month Averages showing the lack of breadth at all-time highs and cycle high market multiples."

 

In other words, yesterday's no volume up day is an expression of investors' lack of conviction. Funny how market volume rips on down days and is nowhere to be found on bull-touted "rallies."

 

A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs  - volume 7 12


Take A Look At The Volume...Are You Comfortable?

Client Talking Points

Pound Sterling

The GBP/USD rises +1.18% to $1.3152 intraday on news the UK is set to receive a new Prime Minister (Theresa May) in 2 days. However, we caution that relief rallies may be met by incrementally more dovish policy from governor Mark Carney and the BOE in the wake of Brexit. Carney has repeatedly said that the leave vote “materially changes the risk outlook” and the Bank is “ready to take more action if needed”. The BOE next meets this Thursday. 

#Volume

Take a look at volume the last two trading days and you’re comfortable calling the nearly 2% move in the SPY Friday-Monday a “melt-up”. Market and Total exchange volume on Friday was down -8% and -7% vs. 1-month averages on Friday and yesterday volume was much lighter still. Total market volume was down -24% vs. 1-month averages and total exchange volume was down -19% vs. 1-month Averages showing the lack of breadth at all-time highs and cycle high market multiples.    

Small Business Confidence

Small business hiring growth has been slowing conspicuously over the last year and with small businesses representing over 99% of total U.S. employer firms and >60% of net private sector hiring on a monthly basis, the trend is not inconsequential. This morning’s NFIB small business confidence index for June increased +0.70 points sequentially, marking at 6-month high at 94.5. Under the hood, the Job Openings and Jobs Hard to Fill sub-indices both gained two points while the Compensation and Compensation Plans sub-indices fell -4 points and -1 point, respectively.  Net-net, small businesses continue to have difficulty finding qualified applicants but aren’t expecting to pay up for current or prospective workers. Confidence was better sequentially but represents another lower high as both sentiment and hiring growth remain 6 quarters past peak. 

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/11/16 56% 0% 0% 12% 25% 7%
7/12/16 56% 0% 0% 12% 25% 7%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/11/16 56% 0% 0% 36% 76% 21%
7/12/16 56% 0% 0% 36% 76% 21%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
TLT

On Thursday, we introduced our Q3 Macro Themes: #ProfitCycle, #ConsumerCredit, #EuropeImploding. The gist of themes #1 and #2 emphasize that the economic cycle continues to roll over as evidenced by declining corporate profitability and the pending deceleration in consumer credit growth which is more of a “when” rather than an “if” scenario. 

 

Consumer credit growth has a direct effect on consumption. Employment and consumption peaked on a Y/Y rate of change basis in Q1 2015 right after corporate profits peaked in the second half of 2014.

GLD

We want to be long of continued growth decelerating and inflation picking up from a GIP modeling perspective into the back half of 2016. TIPS are a great way to play both of these views along with our GLD (reflation) and TLT (growth slowing) positions.

TIP

See update on TLT/GLD.

Three for the Road

TWEET OF THE DAY

CHART OF THE DAY: A Post-Brexit Look At FTSE & Pound app.hedgeye.com/insights/52274… via @HedgeyeDJ #Brexit $FTSE #Pound

@Hedgeye

QUOTE OF THE DAY

"Brock Lesnar does what Brock Lesnar wants to do"

-Brock Lesnar

STAT OF THE DAY

Giancarlo Stanton won the MLB homerun derby last night, he hit a total of 61 homeruns...39 of which went over 440 ft.


Daily Market Data Dump: Tuesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, and key currency crosses. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Tuesday - equity markets 7 12

 

Daily Market Data Dump: Tuesday - sector performance 7 12

 

Daily Market Data Dump: Tuesday - volume 7 12

 

Daily Market Data Dump: Tuesday - rates and spreads 7 12

 

Daily Market Data Dump: Tuesday - currencies 7 12


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CHART OF THE DAY: A Post-Brexit Look At FTSE & Pound

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more.

 

"... The FTSE has largely shaken off the impact of BREXIT and is now approaching 52-week highs. The British pound on the other hand remains at close to 52-week lows and has barely budged since collapsing after the June 24th referendum. Perhaps no currency is an island?"

 

CHART OF THE DAY: A Post-Brexit Look At FTSE & Pound - 07.12.16 chart


The Island

“No man is an island entire of itself, 

Every man is a piece of the continent, a part of the main.”

-John Donne

 

A group of our teammates are in London this week and, as they are discovering, the United Kingdom is once again becoming largely an island.  It was barely three weeks ago, but the referendum on June 24th has set in motion a series of events that are likely to negatively impact business activity in the U.K. and Europe proper for some time to come.

 

Interestingly, the OECD actually suspended publication of its monthly leading indicators based on Brexit saying:

 

“The CLIs cannot…account for significant unforeseen or unexpected events, for example natural disasters, such as the earthquake, and subsequent events that affected Japan in March 2011, and that resulted in a suspension of CLI estimates for Japan in April and May 2011.

 

The outcome of the recent (23 June) Referendum in the United Kingdom is another such significant unexpected event, which is affecting the underlying expectation and outturn indicators used to construct the CLIs regularly published by the OECD, both for the UK and other OECD countries and emerging economies.”

 

So the moral of the story is: if you don’t like the numbers, just suspend reporting them. That’s one way to deal with adversity anyway. Practically speaking, it is pretty difficult to call Brexit an unforeseen event. Perhaps it was viewed as improbable, but hardly unforeseen.

 

The Island - Italian bank cartoon

 

Back to the Global Macro Grind

 

The FTSE has largely shaken off the impact of BREXIT and is now approaching 52-week highs. The British pound on the other hand remains at close to 52-week lows and has barely budged since collapsing after the June 24th referendum. Perhaps no currency is an island?

 

In the short term, the stock market may be getting this close to right. The dramatic fall in the pound makes British exports very cheap and since the unwinding of Britain’s membership will take some time, the more than 50% of British exports that go to the EU will remain intact. Over time these exports will be at risk, or subject to some level of tariff.

 

Growth in Britain was questionable at best leading up to the referendum. In fact, the quarterly survey by the British Chamber of Commerce, based on the responses of 8,200 firms, highlighted this anemic growth point this morning. According to the survey, several key indicators remain at low levels with “a fall in domestic and overseas sales in the services sector and manufacturing at historic lows.”

 

Back on the continent, the ECB’s Hansson, in an interview with the Wall Street Journal, continued to affirm the view the Brexit will be a headwind for Eurozone growth. The BOE minutes that were released over night, make a very similar point and indicate the BOE is “ready to take action.” So if there is a collective takeaway, it is that interest rates in Europe are likely stay lower for perhaps much, much longer. (And we haven’t even started to talk about Italian banks ...)

 

Speaking of central banking, the Japanese are turning to The Bernank for input. Yesterday, former Fed Chairman Ben Bernanke reportedly met with BoJ Governor Kuroda. This comes at a time when the Japanese are experience lower than expected growth, lower than expected inflation, and also contemplating ending or slowing their bond repurchase program as they come to the “end of the bond market.” It may not be long before we see helicopters over Japan dropping money...

 

The “unforeseen” event that might require the OECD to stop publishing numbers on the U.S. is probably related to the election. Specifically, this week the Never Trump forces have their last shot at derailing his candidacy. As our colleague JT Taylor from our Washington, DC office writes in his morning Capital Brief note (email if you’d like to be added to the distribution):

 

“With less than a week to go until the convention, anti-Trump forces are scrambling faster than ever to dethrone the presumptive nominee. Removing Donald Trump may be their main objective, but another option is being weighed – attempting to select his veep akin to an arranged marriage. The nominee's running mate is still technically decided by an independent delegate vote and delegates have no obligation to support the nominee's choice. The Rules Committee is set to meet later this week to decide convention rules and the party platform, and we doubt any coup will succeed, but this could get interesting depending on Trump’s highly anticipated pick reportedly coming at the end of this week.”

 

So this week will basically be the last chance to stop Trump, but both JT and our colleague former Secretary of Energy Spencer Abraham, who formerly served on the Rules Committee, believe this is much ado about nothing and Trump will march on uncontested. Regardless, the Republican Convention is likely to make for some interesting T.V. next week.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.33-1.52%

SPX 2087-2154

VIX 12.61-20.45 
USD 95.17-97.01 

Gold 1 

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

The Island - 07.12.16 chart


July 12, 2016

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  • Bullish Trend
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  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.52 1.33 1.43
SPX
S&P 500
2,087 2,154 2,137
RUT
Russell 2000
1,030 1,196 1,179
COMPQ
NASDAQ Composite
4,825 5,020 4,988
NIKK
Nikkei 225 Index
15,112 16,260 15,708
DAX
German DAX Composite
9,307 9,939 9,833
VIX
Volatility Index
12.61 20.45 13.54
USD
U.S. Dollar Index
95.17 97.01 96.59
EURUSD
Euro
1.09 1.12 1.10
USDJPY
Japanese Yen
100.20 105.06 102.83
WTIC
Light Crude Oil Spot Price
43.61 47.22 44.55
NATGAS
Natural Gas Spot Price
2.60 2.99 2.71
GOLD
Gold Spot Price
1,305 1,386 1,356
COPPER
Copper Spot Price
2.05 2.21 2.14
AAPL
Apple Inc.
93.51 98.30 96.98
AMZN
Amazon.com Inc.
717 760 753
NFLX
Netflix Inc.
87.01 101.02 94.67
GOOGL
Alphabet Inc.
681 730 727
JPM
J.P. Morgan Chase & Co.
57.04 63.20 62.27
GM
General Motors Co.
27.23 31.14 30.13



Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


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