US STRATEGY – Managing Risk

Today we have included three new charts to help manage risk around the S&P 500, USD Index and the VIX. 


The S&P 500 declined 0.9% yesterday, with the index seeing its biggest one-day pullbacks since October 30th. The RECOVERY trade faced headwinds from the bounce in the dollar.  The Dollar Index rose 0.11% yesterday and is now up two out of the last three days.   


On the macro front, the economic calendar offered some support to the market.  Initial jobless claims were unchanged at 505,000 in the week-ended November 14th, and the four-week moving average fell to 514,000 from 521,000, the lowest level since last November. In addition, continuing claims fell for a ninth straight week. The Philly Fed Index was another bright spot, rising to a better-than-expected 16.7 in November from 11.5 in October, with new orders increasing to 14.8 from 6.2 and shipments jumping to 15.7 from 3.3.  Leading indicators only rose 0.3% in October vs. consensus expectations for a 0.4% gain; the index is still up for a seventh straight month.


Over the past two days the news flow on the consumer related trends continue to show some deterioration from the recent trends.  This week mortgage applications declined 2.5% last week to the lowest level in 12 years.  It was reported yesterday that mortgage delinquencies rose to a seasonally adjusted rate of 9.6% at the end of the 3Q09. 


Yesterday, the VIX rose 4.6%, but has declined 6.6% over the past week. 


While every sector declined yesterday, the three best relative performers were Consumer Staples (XLP), Healthcare (XLV) and Consumer Discretionary (XLY).   While the XLY was one of the better relative performers, it was a busy day on the earnings calendar with HOTT, DKS, LTD and ROST all reporting in line numbers.   Although, all four stocks declined yesterday on guidance that was disappointing!


The worst performing sectors were Energy (XLE), Financials (XLF) and Materials (XLB). With the dollar up it was a tough day for the sectors with leverage to the global RECOVERY theme.   Within the XLB, the steel stocks were the notable decliners. 


From a risk management standpoint, the ranges for the S&P 500, USD Index and the VIX are seen in the charts below.  The range for the S&P 500 is 33 points or 2% upside and 1% downside. 


Howard Penney

Managing Director


US STRATEGY – Managing Risk - sp1


US STRATEGY – Managing Risk - usd2


US STRATEGY – Managing Risk - vix3


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