R3: REQUIRED RETAIL READING
February 12, 2010
This morning we highlight a handful of key observations from the latest set of weekly sports apparel and footwear data. Overall, status quo on the apparel trend, with an uptick in athletic footwear led primarily by Nike. Our top pick in the space also remains Nike, although this is certainly not a call on one week's data.
TODAY’S CALL OUT
This morning we highlight a handful of key observations from the latest set of weekly sports apparel and footwear data. Overall, status quo on the apparel trend, with an uptick in athletic footwear led primarily by Nike. Our top pick in the space also remains Nike, although this is certainly not a call on one weeks data.
- Athletic apparel industry dollar sales for the week are in line with current trends observed over the past 3 weeks. No notable change in sales cadence, with the exception of a slight narrowing of performance between the traditional Sporting Goods retailers and the Discount/Mass retailers. Recall that we recently noted a wide divergence in performance between these two channels, which suggested the consumer has been decidedly in favor of branded performance apparel vs. other value priced offerings.
- We may be observing a small pick-up in discounting in the Sporting Goods channel, although it’s probably still too early to make a big callout on this. The 1% decline in ASP’s for the week, offset with an acceleration in unit sales suggests that there may be promotional activity. We suspect this is post-season clearance, but we will keep an eye on this in the coming weeks.
- Adidas sport apparel sales growth has been on a path of steady decline since the beginning of the year, with those declines accelerating to a 1.2% y/y decrease. This marks the brand’s first negative reading since the beginning of last Summer.
- This week we observe a sizable inflection to the upside on overall industry sales, with the two-year trend growing for the first time in 4 weeks. Strength across the Nike brand portfolio is was a key driver of the acceleration.
- Nike posted a 53% increase y/y for the week, driven in part by a +3000bps sequential improvement in Brand Jordan. Clearly new product introductions are helping here.
- With expectations for Under Armour footwear tempered by management’s focus on building the product line and brand for the long term, we see continued weakness for the brand at retail. However, this week’s sequential deceleration was 2200bps, still a large decline but substantially better than trends we have seen in recent weeks.
Eric Levine & Darius Dale
LEVINE’S LOW DOWN
- When asked about key drivers of sales in the near-term, Family Dollar’s CFO suggested that efforts to expand store hours is at the top of the list. By the end of the this month, FDO expects to have all stores rolled out with expanded hours. This marks an acceleration in the rollout, which means either sales have slowed and they are attempting to make up for it, or the extra hours actually drive incremental sales. Either way, consumables sales are still outperforming discretionary- a trend that is expected to continue until we see a measurable change in the economic backdrop.
- Along with a better than expected earnings report, VF Corporation also announced it is stepping up its marketing and product development efforts in 2010. The company will spend an incremental $50 million or 70 bps as a % of sales, to bolster market share in The North Face, Vans, 7 For All Mankind, and in the Asia region overall. Approximately $40 million will be spent on advertising while the rest will come in the form of product development and innovation. Included in this plan is The North Face’s first foray into TV advertising.
- Even after recording the first year of coupon usage growth in over a decade, Free Standing Insert coupons (you know, the Sunday paper kind) grew at a substantially slower pace than their digital equivalents. According to coupons.com, digital coupons grew at a rate of 10 to 1 vs. traditional paper based promotions. Approximately 20% of the U.S population used digital coupons last year. Additionally, digital coupon users tend to have higher household incomes than traditional coupon clippers.
Coach Plans Spring Opening For First Store Focused On Men - Coach Inc. (COH) is opening its first men's-only store as the retailer moves to extend its reach beyond traditional female customers. The store will be on trendy Bleecker Street in New York City's West Village, taking over space that was occupied by a Ruehl boutique that was closed as Abercrombie & Fitch Inc. (ANF) shuttered the concept last year. <wsj.com>
Birkhold Outlines New Lacoste Strategy - Steven Birkhold assumed the chief executive officer position at Lacoste’s U.S. business on Jan. 4 and is laying out a postrecession strategy for the French sportswear brand. The former Diesel USA ceo’s game plan includes expanding merchandise assortments outside of Lacoste’s core polo business, opening new outlet stores to de-emphasize markdowns in full-price doors, opening a concept store for the trendy Lacoste Red collection and doubling marketing expenditures in the U.S. Currently 30 to 40 percent of the U.S. business is in polo shirts. “There are literally thousands of sku’s available from the Lacoste collections in France and maybe we’ve been too narrow in our editing process for the U.S. market over the last few years,” said Birkhold, who has taken steps to widen assortments for fall. <wwd.com>
LVMH Takes Another Ebay Decision - LVMH Moët Hennessy Louis Vuitton has won another case against online auction giant eBay — this time for its flagship Louis Vuitton brand. Calling the decision a victory in protecting consumers against counterfeiters, Vuitton said Paris’ Tribunal de Grande Instance, or Superior Court, ordered eBay to pay it 200,000 euros, or $275,206 at current exchange rates, in damages, as well as 30,000 euros, or $41,281, for legal fees. The court also ordered eBay to stop using Vuitton-related key word searches or face fines of 1,000 euros, or $1,376, per infraction. “Louis Vuitton welcomes this decision which confirms established case law that aims to protect the consumer from the illicit use of company trademarks,” said Nathalie Moullé-Berteaux, global intellectual property director of Louis Vuitton. EBay said it was disappointed by the Paris court’s decision, but satisfied LVMH had been awarded just 200,000 euros, instead of the 1.2 million euros, or $1.6 million, the luxury group had originally requested. <wwd.com>
Kohl's Launches Multi Million Dollar Initiative to Fight Breast Cancer - Kohl's Department Stores (NYSE: KSS) announced today a new philanthropic initiative to fight breast cancer in the state of Wisconsin. Kohl's will donate more than $7 million over the next three years to the American Cancer Society and the Milwaukee Affiliate of Susan G. Komen for the Cure. The donation, which will be used to support breast cancer research, education and patient-assistance programs, represents the largest corporate gift ever made to the Komen Milwaukee Affiliate — or any national Affiliate — of Susan G. Komen for the Cure®, as well as to the American Cancer Society’s Midwest division, which includes Iowa, Minnesota, South Dakota and Wisconsin. "At a time when many companies are cutting philanthropic giving, we are in a financial position that allows us to expand our community relations programs with a new focus on women's causes," said Kevin Mansell, Kohl's president, chief executive officer and chairman of the board. " <prnewswire.com>
How Best Buy stays relevant in a changing online world - It’s getting more challenging to reach increasingly demanding customers online, so Best Buy Co. Inc. is carrying out a three-part web strategy of enhancing accessibility, localization and personalization, John Thompson, general manager of BestBuy.com, will tell his audience during his keynote address at next week’s Internet Retailer Web Design & Usability Conference. In a presentation he has entitled Staying relevant in a changing landscape, Thompson will describe the steps Best Buy is taking to connect with shoppers in new ways, engage consumers at a local level and personalize key components of its web site to increase the relevance for shoppers. Thompson, who joined Best Buy in 2001 as senior vice president of supply chain and business systems for Best Buy stores, has also worked as a senior executive at other major retailers. He was chief information officer at Liz Claiborne Inc. and chief information officer and executive vice president of merchandise planning and logistics at Goody’s Family Clothing Inc. <internetretailer.com>
Charlotte Ronson Entering Chinese Market - Charlotte Ronson has formed an alliance with Hong Kong-based MH Concepts to bring the contemporary brand to China. The partnership marks Ronson’s first Chinese venture and will begin with the fall Charlotte Ronson collection in July, when four doors open in Hong Kong, Shanghai, Beijing and Guangzhou. Six additional doors are to launch before yearend, reaching a total of 200 by 2014 throughout China, Hong Kong and Macau. The doors include freestanding stores, mall units and department store shop-in-shops. Thirty percent will be directly operated by MHC, and the rest will be franchises. Merchandise will be sold in China online at charlotteronson.cn. The entire venture is expected to generate $10 million in first-year sales. <wwd.com>
TNF Expands PlanetExplore to New York Area - The North Face today announced that PlanetExplore, a new online resource for outdoor recreational activities, is now available in the New York region. Created by The North Face, PlanetExplore is an online community of national and regional organizations, helping people of all ages find local outdoor recreational activities. The New York launch of PlanetExplore comes on the heels of The Outdoor Foundation’s recently released Special Report on Youth, which found that outdoor participation among youth continues to decrease each year, with the rate of decline steepest among the youngest age groups. After launching in the San Francisco Bay Area, home of The North Face, PlanetExplore expanded into the Midwest with a Denver release, and is now available nationwide with the New York introduction. The site has partnered with more than 100 non-profit organizations across the country, offering many opportunities to discover a diverse array of outdoor activities. <sportsonesource.com>
Burton Cuts Small Percentage of Staff and Reinstates Salaries - Burton has restructured its North American staff, resulting in a layoff of less than 2% of its global employee base. The company also announced that it reinstated salaries and merit increases that were decreased eight months ago due to the economic downturn. "Burton continues to lead the industry, which is in better shape than it was one year ago," says Burton CEO Laurent Potdevin. "Layoffs are always difficult, but in today's changing marketplace, some restructuring was necessary to maintain our investments in product development and marketing." After staff reductions, Burton employs over 600 people in North America, with its total global headcount topping 950. <sportsonesource.com>
Retailers are turning to social media, video and faster buying, study shows - The 2009 holiday shopping season was perhaps the roughest in the history of online retailing. The wretched economy caused consumers to rein in spending and conduct more comparison shopping, hunting for the best deals.
Changing consumer behavior throughout 2009, in turn, caused retailers to try new selling and branding techniques, or augment existing ones. Three areas of change included the use of social networking, online video and streamlined purchasing, according to The E-tailing Group Inc.’s annual study of 100 online retailers. 60% of the retailers in the study featured on their e-commerce sites links to social network presences, notes Lauren Freedman, president of the research and consulting firm. Freedman will be speaking at the Internet Retailer Web Design & Usability Conference, Feb. 15-17 in Orlando, FL, in a session entitled Lessons from Holiday 2009. <internetretailer.com>
U.S. Textile, Apparel Imports Fall in '09 - The volume of textile and apparel shipments to the U.S. declined in 2009 amid the global recession, even as imports from China and Vietnam continued to rise.The overall U.S. trade gap widened in December to $40.2 billion, compared with $36.4 billion in November, primarily because of a surge in oil imports. Nigel Gault, chief U.S. economist for IHS Global Insight, said U.S. exports are likely to grow but imports will be subject to fluctuations as the global economy rights itself. Despite the wider trade deficit in December, he said, “It is hard to describe the trade figures as bad news, since they show a continuing robust rebound in world trade.” Textile and apparel imports dropped 7.5 percent to 46.6 billion square meter equivalents compared with 2008, the Commerce Department Office of Textiles and Apparel said Wednesday. Apparel shipments for the year fell 6.1 percent to 21.3 billion SME. Textile shipments were down 8.6 percent to 25.3 billion SME. <wwd.com>
Consumer Groups Warn About Tax Refund Loans - Millions of Americans buy pricey refund-anticipation loans, or RALs, instead of waiting for their free IRS checks. Consumer advocates have warned taxpayers for years about the loans that, they say, drain millions of dollars out of U.S. tax refunds each year. Indeed, 8.4 million Americans took out RALs in 2008, costing them $806 million in interest payments and fees, according to data recently published by two consumer advocacy groups; the Consumer Federation of America and the National Consumer Law Center. RALs often carry annual percentage rates as high as 500 percent, according to the law center, with an average RAL of $3,300 carrying a rate of 72 percent.
Refund-anticipation lenders often target low-income taxpayers, especially those who receive the Earned Income Tax Credit, according to the IRS. About 1 in 17 tax returns filed in 2008 involved a RAL. <abcnews.go.com>
The Macau Metro Monitor, February 12th, 2010
MACAU TOURIST ARRIVALS FALL 3% YOY IN DECEMBER DSEC
According to the Statistics and Census Service, visitor arrivals in package tours to Macau decreased 3% y-o-y to 486,382 in December. Tourists from mainland China dropped 4% to 332,550, while those from Hong Kong and Taiwan slumped 20.3% and 31.4%, respectively. On the other hand, tourists from Japan increased 24.9%. Meanwhile, the number of Macau residents traveling abroad in package tours jumped 11.2% annually to 25,202 in December, with mainland China and Japan being the most popular destinations.
GONG XI FA CAI Destination Macau
Macau expectations are high for the upcoming Chinese New Year. Right now, it is a good sign that all hotels are fully booked for 12 days starting Feb 12. Sunday and Monday may not be very busy on the mass floors as day-trippers celebrate CNY with family members but DM expects heavy traffic through Gongbei on Tuesday.
GALAXY LANDS SOME BIG FISH Destination Macau
Galaxy has recently made some big profile hires ahead of it's 1Q2011 opening of Galaxy Macau Resort. DM has heard through the grapevine that Galaxy hired Jorge Neto Valente and Mark Brown. Mr. Valente is known as Macau's premier dealmaker who formerly served as Venetian Macau's managing director and Mark Brown was formerly the head of LVS's macau operations before being pushed out.
CHINA CRACKS DOWN ON ONLINE GAMING Destination Macau
DM thinks that China's recently launched online gaming crackdown could impact some of Macau's biggest VIP room operators who run online gaming sites in China as a way to traffic money on and offshore. If these VIP operators are impacted, it would hamper their ability to service junket players.
Risk Managed Long Term Investing for Pros
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.
“The tighter you squeeze, the less you have.”
China is tightening reserve requirements on its banks by another 0.5% this morning. This is not new. This is a longstanding reminder that the tighter you squeeze a banker’s lending terms, the less he has.
In sharp contrast to Western politicians, the Chinese government doesn’t seem too keen on bailing out bankers or juicing up the pre-market futures of its stock market. China’s strategy in dealing with lenders appears to be far less diplomatic.
After seeing that moon-shot Chinese loan growth number of 1.39 Trillion Yuan for the month of January (reported yesterday), Big Brother China appears to share the tactical view of one of America’s Three Stooges, Moe Howard, telling their local lenders that, “I’ll squeeze the cider out of your Adam’s apple.”
With that, we enter the waning hours of China’s Lunar Year – the Year of The Ox – and, oh, what a year it was. By the end of the Western world’s calendar year, the Shanghai Composite was up +80%, GDP was running double digits at +10.7%, and China was still reporting year-over-year deflation in its Consumer Price Index (CPI). Economic nirvana, in the rear-view. Then, after Goldman said “buy China” in early January, the music of free moneys stopped.
Alongside Buck Breakout and Rate Run-up, this has been one of our Top 3 Macro Investment Themes for Q1 of 2010. We called it Chinese Ox In a Box. We will be reviewing these 3 Macro Themes on a special intra-quarter conference call after this long weekend. If you’d like to participate in that call, please email . As usual, our subscribers will have some great questions and we won’t have Investment Banking Inc. auditing our answers.
We were bullish on China for most of last year, and our long term TAIL (3 years or less) call on China’s economy remains intact. However, our call for the Chinese Ox In a Box here in Q1 has us short China (CAF) for both immediate and intermediate term durations. We call these durations TRADE and TREND.
Conceptually, we do not like to think within the sell-side box. We pressure ourselves to consider multiple durations and multiple price outcomes across those durations. Some investors have one duration – long term - and are willing to remain long something like China’s stock market for 10-20 percent corrections. As Real-Time Risk Managers, that’s definitely not what we do.
Currently, because we are bearish on China doesn’t mean we are calling for a crash. We are simply calling for what the Chinese government has told us it is going to do – slow speculative growth. There are plenty of places to quantify Chinese speculation, but here are 3 factors we have been proactively anchoring on:
1. Money supply growth
2. Chinese Yuan-based loan growth
3. Chinese stock prices
Money supply growth (M2) is already slowing (from +29.7% y/y growth in November to +26% y/y just reported for January). Chinese Yuan based loan growth is accelerating (the January print of 1.39T Yuan implies y/y growth of 73%! versus last year’s record +52% annualized pace). And Chinese stock prices are some of the worst performing, globally, for 2010 to-date.
So, all in, 2 of 3 fixes are in motion and the last one to fix is most likely to correct most abruptly. To some extent, seeing a final rip higher in Chinese loans this past month makes sense. If you know Big Brother China is going to tighten, you probably clamor to borrow as much as you can before he actually does good by his promise.
You see, in China, they mean what they say, and they do what they mean. While the Chinese have yet to raise interest rates on their benchmark lending rate or allow the Chinese Yuan to appreciate, those two things are coming to a CNBC pre-market open theater near you as well. So, again, that’s a foreseeable global macro risk that you shouldn’t wake up surprised to like people are, evidently, here in the US this morning.
From a risk manager’s perspective, I can simplify all 3 of the aforementioned research factors by correlating them with the lines of support and resistance in my 3 factor duration model (TRADE, TREND, and TAIL). For the Shanghai Composite, here are those lines:
1. TRADE line resistance = 3098
2. TREND line resistance = 3176
3. TAIL line support = 2881
Put another way, I will cover my short position in China (CAF) as the real-time market price approaches my long term TAIL of support at 2881. Last night, the Shanghai Composite closed at 3018 (down -7.9% YTD), so that gives me another -4.5% of downside from here.
Again, I am currently not calling for a crash, nor am I saying I may not start to call for a crash. What I always say is 1. that as the game changes, I will, and 2. that as people start to freak-out about China, I have a proactive plan to cover my short position and consider the long side again. Everything has a time and a price.
A drop to 2881 would equate to a -13.7% correction in Chinese equities versus the recent cycle-peak made of 3338 on November 23, 2009. As the crowd rolls in here worrying about Chinese tightening, you want to roll out. Understand that this situation is A) not new and B) likely to continue, to a point.
Chinese property stocks peaked in July of 2009. The healthy correction in those stocks obviously isn’t new either. Yes, “the tighter you squeeze, the less you have,” but markets move on expectations, not yesterday’s news.
Expectations for Chinese bankers and levered long only stock market speculators alike are well entrenched. They expect to have the “cider squeezed out of their Adam’s apple” if they don’t tone it down. Just remember that as CNBC scurries away from focusing you on Greece.
Best of luck out there today and have a great long weekend,
XLK – SPDR Technology — We bought back Tech after a healthy 2-day pullback on 1/7/10.
UUP – PowerShares US Dollar Index Fund — We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).
EWG - iShares Germany — We added to our position in Germany on 2/4/10 on the bullish intermediate term TREND thesis Matt Hedrick maintains on Germany. We are short Russia and, from a European exposure perspective, like being long the lower beta DAX against the higher beta RTSI as well.
CYB - WisdomTree Dreyfus Chinese Yuan — The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.
TIP - iShares TIPS — The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.
GLD – SPDR Gold — We re-shorted Gold on this dead cat bounce on 2/11/10. We remain bullish on a Buck Breakout and bearish on Gold for Q1 of 2010, as a result.
CAF – Morgan Stanley China — The Chinese Ox Remains In A Box. We shorted CAF on 2/10/10 ahead of another inflationary report that registered China’s CPI at +1.5% in January Y/Y, and PPI at +4.3% Y/Y.
RSX – Market Vectors Russia — We shorted Russia on 2/9/10 and maintain our intermediate term TREND bearish view on the price of oil.
XLP – SPDR Consumer Staples — The Consumer Staples sector finally broke both our TRADE and TREND lines on 2/8/10. Given how many investors own these stocks because it was a "way to play the weak US Dollar" last year, we have ourselves another way to profit from a Buck Breakout with this short position.
EWW – iShares Mexico —Mexico short is a solid compliment to our concerns about sovereign debt risks and our bearish intermediate term view on oil.
EWJ – iShares Japan — We re-shorted Japan on 2/2/10 after the Nikkei’s up move of +1.6%. Japan's sovereign debt problems make Greece's look benign.
IEF – iShares 7-10 Year Treasury — One of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.
Yes, the numbers were in-line with our projections but the underlying metrics were not encouraging. Same store volumes were awful as CityCenter actually took a big bite thanks to Baccarat and luck.
We were surprised by the positive reaction the Street had to the positive growth in the December Las Vegas Strip revenues yesterday. A deeper analysis indicates that they underlying metrics were not good with the possible exception of MGM’s CityCenter.
In the Nevada Gaming Revenue Report released yesterday, CityCenter numbers actually fell in a different category than those of the rest of the mega properties since it was open for about half of the month. Nevada groups casinos into revenue categories of $36-72 million and greater than $72 million. CityCenter would normally be grouped in the latter but for this month only, it fell into the former category. This allows us to approximate CityCenter’s revenues since there was no other major supply in the $36-72 million category. Here is what we found.
CityCenter generated about $57 million in gaming revenues for the 15 days it was open in December. Before people get too excited about the annualized $1.3bn in gaming revenues this number implies, we have a couple of comments. First, over 80% of that revenue came from Baccarat which always spikes during the Christmas to New Year’s season. Second, with MGM’s database of high end Baccarat players, it is very easy to concentrate players at one property while cannibalizing its other high end properties such as MGM Grand and Bellagio. Finally, CityCenter played very lucky which contributed around $15 million in additional revenue – over 25% of the total. Until we see how MGM’s other properties performed it is impossible to draw any lasting conclusions from the initial CiityCenter results.
Unfortunately for MGM, the same store metrics suggest that December was not a good month for the existing properties. Our discussion here will be concentrated on volumes (slot handle and table drop) because revenue can be swayed significantly by luck. We focus on volumes in the greater than $72 million category because that is where most of the major properties fit and CityCenter, at least for December – is not included there. The major properties of WYNN, LVS, and MGM all fall into this category. The following chart details the important same store metrics (>$72m) versus the Strip total.
The clear takeaway is that same store volumes were not good. Probably the purest, highest margin, and most stable indicator of Strip health, same store slot volume, fell 15%. Despite the boost from China Baccarat players, same store table drop declined 12%. Adjusting for the much higher slot hold percentage, total same store revenue in the category would’ve fallen almost 14%.
Yesterday, MGM, LVS, and WYNN, climbed 9%, 7%, and 6%, respectively. Some of it was beta to a strong market but these stocks really took off when the Nevada numbers hit the tape. Expectations for Macau are already high – justifiably so – and now it looks like they are for Las Vegas too. We’d fade that optimism.
"Any change is resisted because bureaucrats have a vested interest in the chaos in which they exist."
-Richard M. Nixon
From a MACRO perspective there were a number of undercurrents that put a bid under the market yesterday.
(1) Getting past the Greek contagion issue improved the RISK AVERSION trade
(2) A below-consensus January CPI print out of China buoyed the REFLATION trade
(3) Initial jobless claims fell sharply in the first week of February helping the RECOVERY trade
(4) The earnings season is supportive of the RECOVERY trade
That said the S&P 500 rallied by 0.97% yesterday, albeit on light volume. The VIX declined 5.67% yesterday and has now declined 9.9% over the past three days. The VIX remains positive on TREND at 22.43. The Hedgeye Risk Management models have the following levels for VIX – buy Trade (22.43) and Sell Trade (28.28). Yesterday, both the Consumer Discretionary (XLY) and Industrials (XLI) joined Healthcare (XLV) as positive on TREND.
As we are waking up today, equity futures are currently trading below fair value as China's Central Bank raises reserve requirements by 0.5% and Germany Q4 GDP data was disappointing. This has the Dollar index up by nearly 1% in early trading. The Hedgeye Risk Management models have levels for DXY at – buy Trade (79.69) and sell Trade (80.69).
On the MACRO calendar today are retail sales and the University of Michigan consumer confidence. In a post yesterday we suggested that the confidence number is likely to be disappointing, given an independent survey we look at that tracks closely the more widely disseminated University of Michigan.
Yesterday, initial claims fell 43,000 to 440,000 to the lowest level in a month and compared with consensus expectations for a decline to 465,000. This brings the 4-week rolling average down 1.5k to 468.3k from 469.8k last week. This is an important print as it reverses the negative trend of the last three weeks, and keeps the trajectory in-line with the data trends since March 2009.
The two best performing sectors yesterday were those that benefited from the REFLATION trade - Materials (XLB) and Energy (XLE). Commodities and commodity equities benefitted as the dollar index gave back all of its earlier gains and ended down slightly. Steel stocks led the XLB; US Steel was the standout in the group after a sell side upgrade. Coal stocks and an outsized rally in natural gas were the bright spots in the XLE.
The Financials (XLF) are like Dr. Jekyll and Mr. Hyde. Over the last three days the XLF has gone from worst, to best, back to the worst performing sector yesterday. There was no overriding catalyst behind the underperformance, as the Insurance names were mixed following earnings from Prudential and the big investment banks were moving in opposite directions.
As we look at today’s set up the range for the S&P 500 is 53 points or 2.9% (1,046) downside and 1.9% (1,099) upside.
In early trading, copper dropped in London after the biggest weekly rise in more than a year, on concern that a surge may have been overdone. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.80) and Sell Trade (3.14).
In early trading gold fell in London with a stronger dollar and China’s move to cool its economy. The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,045) and Sell Trade (1,112).
Oil is trading down with the rest of the commodity complex and a stronger dollar. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (70.37) and Sell Trade (77.23).
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