prev

US STRATEGY – NOT PERFECT ANYMORE!

I’m not referring to Tiger Woods, but the Financials (XLF).  The XLF is the first sector to break TRADE and TREND!

 

After a mini crisis on Friday, the market looks to open modestly higher today as some of the fears from the Dubai debt crisis are mitigated and the focus is holiday sales trends.  The S&P 500 closed down 1.7% on Friday and has now been down five of the last seven days.  On Friday the S&P 500 held the 1,081 TRADE line in quiet post-holiday trading. 

 

The Dubai World credit issue has taken the wind out of the sails of commodities and commodity stocks, which have been the biggest beneficiaries of the RECOVERY trade.   The Dollar rose 0.2% on the day and volatility surged as the VIX rose 21% on the day. 

 

The Holiday shortened week was relatively quiet one with the Dow and the S&P 500 basically unchanged on the week.  The NASDAQ declined 0.4% and Russell 2000 1.3%.   Last week the MACRO calendar provided some better-than-expected economic data on the employment and housing picture.  Also adding to the positive tone was increased M&A activity and some better than expected earnings and guidance from some selected retail names.   

 

On Friday, four sectors outperformed the S&P 500, but every sector was down on the day.   Consumer Staples (XLP), Healthcare (XLV) and Technology (XLK) were the best performing sectors.   The

relative outperformance came from renewed momentum in the SAFETY trade due to the strong dollar and weak commodities. 

 

The worst performing sectors were Materials (XLB), Financials (XLF) and Consumer Discretionary (XLY).  The XLF is the first sector to break both key durations - TRADE and TREND.  The Energy sector (XLE) is the other sector to be broken on the TRADE duration.  Within the XLF, Insurance and Diversified Financials were the worst performing industries and regional banks were the best performing names.  The three best performing names in the XLF were STI, PBCT and HCBK.

 

From a risk management standpoint, the ranges for the S&P 500, the Dollar Index and the VIX are seen in the charts below.  The range for the S&P 500 is 21 points or 1% upside and 1% downside.  At the time of writing the major market futures are down slightly.

 

Crude oil is trading higher on U.A.E. backing of the Dubai Banks and a weaker dollar.  The Research Edge Quant models have the following levels for OIL – buy Trade (74.31) and Sell Trade (75.49).

 

On Friday, Gold dropped over 4%, but it remains in a bullish formation from a TREND and TRADE perspective.    The Research Edge Quant models have the following levels for GOLD – buy Trade (1,163) and Sell Trade (1,190).

 

Copper is higher in early as concerns of Dubai World eases.  The Research Edge Quant models have the following levels for COPPER – buy Trade (3.09) and Sell Trade (3.18). 

 

Howard Penney

Managing Director

 

US STRATEGY – NOT PERFECT ANYMORE! - sp1

 

US STRATEGY – NOT PERFECT ANYMORE! - usdx2

 

US STRATEGY – NOT PERFECT ANYMORE! - vix3

 

US STRATEGY – NOT PERFECT ANYMORE! - oil4

 

US STRATEGY – NOT PERFECT ANYMORE! - gold5

 

US STRATEGY – NOT PERFECT ANYMORE! - copper6

 


THE WEEK AHEAD

The Economic Data calendar for the week of the 30th of November through the 4th of December is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on. 

 

THE WEEK AHEAD - wa1

THE WEEK AHEAD - wa2

 


Credit Problems: It's Not Just Dubai

This is more of a reminder chart than anything else, but don’t forget that worries about global credit are not just Dubai based.

 

In the chart below, Matt Hedrick and Howard Penney have outlined the recent activity in Greek CDS – as in the credit default swaps (CDS) of a country (Greece). The Greek stock market was down -7% last week for reasons that are not new this morning.

 

Issues with credit default swaps are also glaring in Japan. This has been one of the major reasons why we have remained short the Japanese stock market. When a country’s currency appreciates like Japan’s has (hitting 14-year highs today), it puts tremendous pressure on DEBTORS.

 

Again, this Aiful news out of Japan is not new, but maybe it matters more in concert when considered with Greece and Dubai. Japan’s 2nd largest consumer lender by assets, Aiful, is having major issues with their CDS. We are also seeing CDS issues related to Thomson (levered European media company) and Cemex (levered Mexican materials company).

 

Aiful – as in awful. That’s what a world addicted to debt gets – new spellings for new paradigms of globally interconnected risk.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Credit Problems: It's Not Just Dubai - cds

 


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

US Strategy: Managing Risk on Black Friday

Heading into an abbreviated trading day I’ve include our TRADE levels for the S&P500, US Dollar Index, VIX, Oil, Gold, and Copper in the charts below.

 

Howard Penney

Managing Director

 

US Strategy: Managing Risk on Black Friday - sp1

 

US Strategy: Managing Risk on Black Friday - usdx2

 

US Strategy: Managing Risk on Black Friday - vix3

 

US Strategy: Managing Risk on Black Friday - oil4

 

US Strategy: Managing Risk on Black Friday - gold5

 

US Strategy: Managing Risk on Black Friday - copper6

 


M: L&T Goes For The Win

On Bloomberg this morning, Lord and Taylor’s CEO said they took a contrarian approach towards Black Friday and the forward season by adding more inventory while competitors continue to cut and limit inventory. Like these guys or not, this actually makes a lot of sense to me. Mark my words, come 1Q, we’ll see our fair share of companies blaming weak sales on inventory limitations. Perhaps the perennially-underperforming L&T is left out of the mix this time around.  The SIGMA set-up below is pretty astounding. The sales/inventory spread has gone vertical.  A play on higher inventory is a binary outcome from here. GMROI will be feast or famine.

 

 

He also said November comps were trending as well as October comps as they expect low double digit comps like in October.

 

M: L&T Goes For The Win - Macy s SIGMA


The 2010 Sneaker Setup Continues…

The 2010 Sneaker Setup Continues…

 

We continue to see athletic footwear trend up on the margin, reversing a 3Q trend where apparel dominated. Remember that athletic shoes has been one of the few categories that grossly underperformed in 2009. As each week passes we gain confidence in our call that 2010 will mark the year that this turns. Good for FL, FINL, NKE, KSWS and UA. On the flip side, the apparel trends – particularly as it relates to cold-weather apparel sales – are not looking good. Here’s a bit of trivia for you. How many coats are sold in the US every year? It’s about 300mm.  Get the pattern? Roughly 1 coat per person. Yeah, I know… some people buy 5 coats, while other use hand-me-downs for the better part of their lives. But overall, we’re talking a 1 to 1 relationship. This season started with penned-up demand, as well as very cold weather. Now demand is easing, and the temp has risen. I originally thought the weak comp guidance  thrown out there by guys like DKS for 4Q was simply conservative. Now it’s looking realistic (bad for DKS, COLM and VFC). Again…the play here is toward those who have more exposure to footwear.

 

The 2010 Sneaker Setup Continues… - Table Sporting Goods

 

The 2010 Sneaker Setup Continues… - Footwear and Apparel Sporting Goods Chart

 

 


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next