US STRATEGY - LESS BAD IS GOOD

The most bullish thing a market can do is go up, and yesterday we hit another higher high.  The S&P 500 closed up 0.7%, very close to its 52-week high.  On the MACRO front, existing home sales declined for the third straight month, but were slightly better than expected. The markets took another ‘less bad’ data point as more evidence of economic recovery.

 

February existing home sales were 5.02 million vs. consensus 5.00 million and January reading of 5.05 million.  Single family sales decreased 1.4%, while condos/co-ops increased 4.8%.  The months’ supply increased to 8.6 from 7.8.  Also the March Richmond Fed manufacturing survey index increased to 6 vs. consensus 5 and a prior reading of 2.  The RECOVERY trade continues to live on. 

 

Earlier, today it was reported that mortgage applications in the U.S. came in at -4.2% last week as demand for refinancing dropped by the most in a month.  The housing numbers continue to disappoint!

 

Treasury Secretary Geithner testified before the House Financial Services Committee on housing financing.  As we posted yesterday, the three key take takeaways were:

  • Geithner says it’s not realistic to abolish the GSEs now or at any time in the future.
  • Geithner supports the idea of having an independent agency oversee consumer protection and thinks it’s a terrible idea to put consumer protection within the Fed, as the Dodd bill now proposes.
  • Geithner was asked by Rep Scott Garrett (R-NJ) whether GSE is Sovereign Debt, and he squirmed just like Bernanke did when asked the same question. Ultimately, Geithner said “GSE debt is not sovereign debt, but it is debt that the United States is going to stand behind”. Sounds like he’s having his cake and eating it too.

The Dollar index had another strong day, improving 0.4% and is up 0.8% in early trading today.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy Trade (80.39) and sell Trade (81.06). 

 

With the dollar down and the VIX broken on all three durations - TRADE, TREND and TAIL - the RISK trade is up too; yesterday, the Russell 200 outperfromed the S&P 500 by nearly 40bps.  The Hedgeye Risk Management models have levels for the Volatility Index (VIX) at:  buy Trade (16.06) and sell Trade (18.39). 

 

The advance/decline was positive at 1360, up 380 from the prior day, and volume continues to be very light.  Looking at sector performance, every sector was positive, with five sectors outperforming the S&P 500.  The three best performing sectors were Materials (XLB), Industrials (XLI) and Technology (XLK).

 

The XLB benefited more from the RECOVERY theme, than the rising dollar hurting the index.  The SOX is driving the performance of the XLK of late.  Yesterday, TSM increased its estimate for global semiconductor market output to grow by 22% in 2010 from the previous forecast of 18%

 

Yesterday, Healthcare (XLV) underperformed slightly from the big gains last week as President Obama signed into law the healthcare reform bill.

 

Oil prices are trading lower with the strong dollar.   The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (80.08) and Sell Trade (83.53). 

 

Gold prices are trading lower as the Euro zone news lifts the dollar.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,093) and Sell Trade (1,120).

 

In early trading, copper is trading lower also as the dollar is trading 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, equity futures are trading below fair value in sync with the European indices after Fitch downgraded Portugal's credit rating.  As we look at today’s setup, the range for the S&P 500 is 17 points or 1.2% (1,160) downside and 0.2% (1,177) upside. 

 

Today's MACRO highlights are:

  • Feb Durable Goods
  • Feb New Home Sales
  • DOE Crude Oil Inventories

 

Howard Penney

Managing Director

 

US STRATEGY -  LESS BAD IS GOOD - S P

 

US STRATEGY -  LESS BAD IS GOOD - USD

 

US STRATEGY -  LESS BAD IS GOOD - VIX

 

US STRATEGY -  LESS BAD IS GOOD - OIL

 

US STRATEGY -  LESS BAD IS GOOD - GOLD

 

US STRATEGY -  LESS BAD IS GOOD - COPPER


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