US STRATEGY - STANDING STILL FOR NOW

Because things are the way they are, things will not stay the way they are.
- Bertolt Brecht

US equities finished little changed on Wednesday after being in positive territory for most of the day -  Dow (0.09%), S&P +0.04%, Nasdaq 0.00%, Russell 2000 +0.15%.

On the MACRO front the developments out of the Eurozone were net positive, as the risk trade was underpinned by the news from Greece.  The dollar index experienced its worst decline since December 2, 2009 and has now fallen of the last six days.  Today’s set up of the Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy Trade (79.92) and sell Trade (81.09)

The ISM non-manufacturing index did push further into expansionary territory last month, rising to its best level since October of 2007. The ISM Non-Manufacturing report delivers yet another blow to narrative fallacy of those forecasting a 2010 “double-dip” and the Fed maintaining rates at zero in perpetuity. 

The VIX declined 1.2% yesterday and today’s setup of the Hedgeye Risk Management models have levels for the volatility Index (VIX) at:  buy Trade (18.37) and sell Trade (21.26).  The VIX continues to be broken on all three durations - TRADE TREND and TAIL.

Yesterday’s Dollar weaknesses lead to commodity-related equities outperforming.  The two best performing sectors yesterday were Materials (XLB) and Energy (XLE).  Rounding out the top three performing sectors was Consumer Discretionary.  While the retail group was little changed ahead of today’s February same-store sales data, Ford, CBS and APOL helped drive the index higher. 

Yesterday, there were two sectors that were down on the day - Utilities (XLU) and Healthcare (XLV).  The increased concern surrounding the use of the reconciliation process to pass healthcare reform was a major source of weakness for Healthcare group.  Within the XLV, managed care group extended its recent outperformance with the HMO +0.9%.

As we wake up today, equity futures are trading modestly below fair value in a continuation of yesterday's late day sell off.  Greece is still very much in the headlines as it launched a 10-years bond issue. 

On the MACRO calendar today we have;

  • February retail sales
  • Q4 Nonfarm Productivity,
  • Unit Labor Costs and Initial Claims
  • January Factory Orders,
  • January Pending Home Sales
  • Natural Gas Inventories
  • MBA Mortgage Apps

As we look at today’s set up the range for the S&P 500 is 15 points or 1% (1,108) downside and 0.4% (1,123) upside. 

In early trading copper fell for the first time in five days as the dollar is rebounding from yesterday’s sell off.   The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.32) and Sell Trade (3.47).

After rising for five straight days, Gold is trading lower on dollar strength.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,121) and Sell Trade (1,142).

Crude fell for the first time in three days as the dollar strengthened and increased inventories.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (79.59) and Sell Trade (81.21).

Howard Penney

Managing Director

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