US STRATEGY – TRADE THE RANGE

The S&P 500 finished higher on Friday by 0.29%.  Intraday the S&P500 for the immediate term was oversold, so we bought the SPY; the long term TAIL of support continues to be bullish.  Continued concerns out of Europe dominate the sentiment as the VIX was up 0.26% for the day and 6% for the week.  The Hedgeye Risk Management models have the following levels for VIX – buy Trade (22.29) and Sell Trade (27.02). 

On the MACRO front, January nonfarm payrolls were down 20,000 vs. consensus of 15,000; December nonfarm payrolls saw a significant negative revision to (150,000) from (85,000).  The unemployment rate dropped to 9.7% vs. consensus 10.0%.

On a better than feared unemployment report, the “Buck Breakout” continued putting pressure on commodities and the REFLATION trade.  The Hedgeye Risk Management model has levels for DXY at – buy Trade (79.27) and sell Trade (80.39). 

Despite the dollar rally on Friday, the Materials (XLB) was the best performing sector rising 1.9%.  Over the past month the XLB was the worst performing sector declining 10.7%.   Also seeing a bounce on Friday was the Technology sector (XLK).  Helping to support the move in the XLK was the semiconductors with the SOX up +2.4% on the day. 

The biggest looser last week was commodities with the CRB down 1.93% on Friday and 2.65% for the week.  On Friday oil traded down 2.67% and has now declined for four weeks in a row.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (70.57) and Sell Trade (74.21).

As we look at today’s set up the range for the S&P 500 is 27 points or 0.75% (1,058) downside and 1.7% (1,085) upside.  Equity futures are currently trading mixed to fair value and off earlier highs as the market is facing a quiet week on the MACRO front.  European sovereign debt issues remain in focus although CDS levels for those countries deemed most at risk of default are trading slightly tighter.

In early trading copper rebounded from a three-month low in London as a decline in the U.S. unemployment rate improved investor confidence in the strength of the global economic recovery.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.77) and Sell Trade (3.06).

In early trading gold is trading higher after declining 1% on Friday.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,055) and Sell Trade (1,090).

Howard Penney

Managing Director

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