US STRATEGY - REMOVING UNCERTAINTY - FOR NOW

While the S&P 500 finished higher on significantly lower volume from Friday, the XLU is now broken on TREND.  While the day got off to a shaky start, the Healthcare (XLV) sector provided some early upside leadership following the passage of the Senate's healthcare reform bill in the House; the XLV has increased 5 of the last 6 days

 

While the Dollar index traded flat on the day, the safe-haven status of the dollar continues to gain momentum amid the uncertainty European leaders will fail to agree on an aid package for Greece.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy Trade (80.36) and sell Trade (80.93); the dollar is in a bullish formation. 

 

The strong dollar continues to put pressure on the REFLATION trade.  Materials (XLB) ended up putting in one of the best performances of the day, but two key names (PTV and MLM) were higher on takeover speculation.   The Energy underperformed and was one of two sectors down on the day.  While oil and the bulk of the energy commodities were higher on the day, natural gas remains a laggard.  CHK, CNX and EP all significantly underperformed.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (80.11) and Sell Trade (83.64). We are currently long the USO. 

 

Consumer Discretionary (XLY) and in particular retail was a bright spot on the day, with support coming from earnings and improving consumer spending trends.  The retail S&P Retail Index was up 1.2% on the day; the Department stores (SKS, M, DDS and JWN) were notable outperformers.  Also, WSM rallied after beating on Q4 earnings and raised 2010 guidance.

 

Semis provided much of the upside leadership for Technology (XLK), with M&A and the semi-cap equipment group leading the way. 

 

The notable laggard on the day was the Industrials (XLI).  Within the XLI, FDX and UTX gave back some of their gains from last week. 

 

Yesterday we sold our LONG position in the VXX.  The VIX continues to be broken on all three durations - TRADE, TREND and TAIL.  The Hedgeye Risk Management models have levels for the volatility Index (VIX) at:  buy Trade (16.22) and sell Trade (18.73). 

 

In early trading, equity futures are trading above fair value, following yesterday's up move.  The US MACRO calendar is void of any significant events.  As we look at today’s set up the range for the S&P 500 is 15 points or 0.8% (1,157) downside and 0.5% (1,172) upside.  Today's MACRO highlight will be February existing home sales. 

 

In early trading, copper is trading lower as the dollar is higher.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.33) and Sell Trade (3.42).

 

In early trading Gold is trading lower for the third day in a row.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,093) and Sell Trade (1,120).

 

Howard Penney

Managing Director

 

US STRATEGY -  REMOVING UNCERTAINTY - FOR NOW - sp1

 

US STRATEGY -  REMOVING UNCERTAINTY - FOR NOW - usd2

 

US STRATEGY -  REMOVING UNCERTAINTY - FOR NOW - vix3

 

US STRATEGY -  REMOVING UNCERTAINTY - FOR NOW - oil4

 

US STRATEGY -  REMOVING UNCERTAINTY - FOR NOW - gold5

 

US STRATEGY -  REMOVING UNCERTAINTY - FOR NOW - copper6

 


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