US STRATEGY – VERY NARROW PERFORMANCE

The S&P 500 finished by 0.6% in uneventful trading on Friday. That said only two sectors were up on the day – Financials and Technology.  Healthcare and Consumer Discretionary were flat on the day and every other sector declined.

The MACRO calendar was quiet, while some sovereign and geopolitical concerns were the focus on Friday. 

The dollar index rose 0.2% on Friday and is now up for three straight weeks.  Last week the dollar index rose 1.6%.  The strong dollar led the S&P to decline 0.4% last week, as Energy and Technology were the only sectors that outperformed and were up last week. 

The Technology (XLK) was the best performing sector on Friday.  The earnings calendar was the driver of the outperformance, with ORCL and RIMM leading the way.  Another notable gainer was TTWO, up 9.2% after Carl Icahn increased his stake in the company. 

The only other sector up on Friday was the Financials (XLF).  The XLF was up on the back of the banking group, with the BKX gaining 2.3%.  Although, last week the BKX declined 2.1% and is now down two weeks in a row.  There was some positive sell-side commentary on the sector, but a short covering rally seemed to be in place.

The Consumer Discretionary (XLY) underperformed on Friday, but was flat on an absolute basis.  There were some concerns about the holiday shopping season in the eastern US this weekend.  A bright spot were Restaurants stocks, with DRI up 7.3% on the day.  On Friday, Malcolm Knapp reported that November casual dining same-store sales came in -4.6% with traffic -4.4%.  On a 2-year average basis, this points to a nearly 190 bp sequential improvement in comparable sales trends.  Also on Friday, SBUX improved 6.4%.   

Consumer staples were the worst performing sector on Friday, declining 1.1%.  On a MACRO level the dollar was the likely culprit for the decline.  The big drag on the sector were Tobacco names and the Food Retailers.  The two worst performing name were WAG and WFMI. 

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 27 points or 1.0% upside and 1.0% downside.  At the time of writing the major market futures are slightly higher.

In early trading crude oil is relatively quiet as OPEC has a consensus on “no change” in oil production quotas for the bloc’s meeting tomorrow.  The Research Edge Quant models have the following levels for OIL – buy Trade (69.52) and Sell Trade (74.30).

Gold erased earlier gains to trade little changed in Asia at $1,112.57 an ounce by 2:15 p.m. in Singapore. It had earlier gained as much as 0.6% to $1,119.69.  The Research Edge Quant models have the following levels for GOLD – buy Trade ($1,101) and Sell Trade ($1,151). 

Copper climbed for the first time in three days in Asia on optimism the global economic recovery is gaining momentum.  The Research Edge Quant models have the following levels for COPPER – buy Trade (3.14) and Sell Trade (3.26).

Howard Penney

Managing Director

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