US STRATEGY - BREES WAY

I never had a policy; I have just tried to do my very best each and every day. 

~Abraham Lincoln

 

Some might say that the positive bias in the S&P 500 on Tuesday was driven by the dampened RISK AVERSION trade following some positive news regarding the European sovereign credit contagion.  Yesterday was really all about the FEEL GOOD trade.  With the Dollar index and the VIX comfortable above the TREND and TRADE and not doing much of anything yesterday, the 1.3% rise in the S&P 500 is all about the New Orleans Saints winning the super bowl (it just took a day to sink in.) 

 

Seeing Bourbon Street come alive last night was amazing to watch.  I have never watched a super bowl parade until yesterday.  Four years after being ravished from hurricane Katrina, New Orleans is back and is a small metaphor for the USA.  It makes you FEEL GOOD knowing that someday the US recovery story will be well grounded under the right leadership!  Unfortunately, it still feels like the USA is in training camp. 

 

Sovereign credit contagion concerns have been among the strongest macro headwinds facing the global markets over the last few weeks, and while there no explicit EU backstop for Greece, the market had a more positive tone on the belief that there will be.  To use the line that Jerry Maguire made famous and Drew Brees is thinking - “show me the money.”

 

Yesterday’s performance made you FEEL GOOD about the global RECOVERY trade.  While some of the more defensive leaning sectors such as Healthcare (XLV) and Utilities (XLU) lagged the market, the two best performing sectors are leveraged to a global recovery - The Materials (XLB) and Energy (XLE).  A sell-side upgrade of the Industrials (XLI), rounded out the three top performing sectors. 

 

The Materials (XLB) sector was the best performing sector yesterday, on the back of dollar weakness.  The Dollar index has now declined for the past two days, declining 0.55% yesterday.  The Hedgeye Risk Management models have levels for DXY at – buy Trade (79.48) and sell Trade (80.64).  Within the XLB the Steel and Ag chemicals names were some of the strongest performers. 

 

Yesterday, the Consumer Discretionary (XLY) was the second sector to turn positive on TREND.  Helping the XLY was the above-consensus January global comps from MCD and some fairly upbeat commentary on the retail space.  A headwind for the XLY yesterday was the Homebuilders.  The strength is the housing recovery story is government sponsored and that sponsorship will start to disappear in 2Q10.  We remain very cautious on the housing recovery story!

 

The two notable underperformers yesterday were Technology (XLK) and Financials (XLF).  The banking group was a slight laggard, with both money-center and regional’s underperforming.  Yesterday we shorted CIT.  Josh Steiner wrote a great research note on CIT Monday after the media got too excited about John Thain entering the building.  In short, the cost of capital is a major issue that will not go away anytime soon.

 

As we look at today’s set up the range for the S&P 500 is 36 points or 2.0% (1,048) downside and 0.74% (1,078) upside.  Equity futures are currently trading above fair value, rallying on news Germany said to consider Greek aid beyond loan guarantees.  News about Europe (or Germany) offering Greece some life support continues to be a significant driver of the RISK AVERSION trade.  I still FEEL GOOD that the party in New Orleans will continue into Mardi gras next week.   The Hedgeye Risk Management models have the following levels for VIX – buy Trade (24.30) and Sell Trade (28.12). 

 

Copper is trading higher for a third day as January imports by China rebounded from last year.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.81) and Sell Trade (3.14).

 

The correlation for gold continues - gold is trading higher on the back of a weaker dollar.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,047) and Sell Trade (1,111).

 

The American Petroleum Institute reported that crude inventories rose to the highest since October last year and gasoline supplies reached the highest since March 1999.  Currently Oil is trading up slightly on the day!  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (70.02) and Sell Trade (77.27).

 

Howard Penney

Managing Director

 

US STRATEGY - BREES WAY - sp1

 

US STRATEGY - BREES WAY - usd2

 

US STRATEGY - BREES WAY - vix3

 

US STRATEGY - BREES WAY - oil4

 

US STRATEGY - BREES WAY - gold5

 

US STRATEGY - BREES WAY - copper6

 


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more