US STRATEGY - DON'T GET FOOLED

Yesterday, the S&P 500 finished lower by 0.33%, while breadth continues to deteriorate and volume spiked nicely (up 26% day-over-day).  Despite this week's holiday shortened week, volume was slightly better than the average over the last 100 days of trading.  While it’s hard to quantify, quarter-end dynamics also played a role in yesterday’s performance. 

On the MACRO front the weaker-than-expected ADP private payrolls data, was a slight headwind for the market.  ADP private payrolls fell 23,000 in March vs. consensus expectations for a 40,000 gain. The decline was completely driven by the goods-producing sector, which shed 51K jobs last month, while service sector payrolls rose for the second consecutive month.  The data presented a headwind for the broader market, and especially the Consumer Discretionary (XLY) names.  The XLY was the worst performing sector yesterday, declining 0.7%.   Ford, Limited and AutoNation were the three worst performing stock in the XLY.  Retail was also a laggard on the day. 

Energy (XLE) was the best performing sectors yesterday, as oil continues to rally up 4.4% so far this week.  In early trading today, crude is trading 0.9% higher, to $84.54 a barrel - the highest since Oct. 14, 2008. The Hedgeye Risk Management models have the following levels for OIL – Buy TRADE (81.08) and Sell TRADE (84.43). 

Yesterday dollar weakness also helped the REFLATION trade.  The Dollar index corrected 0.49% yesterday and 0.79% so far this week.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (80.67) and sell TRADE (82.30). 

Along with the XLE, the Financials (XLF) was the only other sector to be up on the day.  The XLF benefited from a big run-up in the mortgage insurers.  Notable under-performers were the regional banks.

Also on the MACRO front the Chicago PMI fell to 58.8 on March from 62.6, below consensus expectations for a slight decline to 61. New orders slipped to 61.8 from 62.2, while production fell to 60.5 from 65.2. Employment held roughly steady at 53.1, while the order backlog dropped to 54.3 from 58.5 and the supplier deliveries index fell to 57.8 from 62.6.  The Industrials (XLI) was the second worst performing sector despite an upside pre-announcement from HON.

The VIX rallied 2.69% yesterday, but remains broken on all three durations - TRADE, TREND and TAIL.  The Hedgeye Risk Management models have levels for the Volatility Index (VIX) at: buy TRADE (16.23) and sell TRADE (18.14).  We are currently long the VXX.

In early trading gold is trading unchanged, but near a two week high.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,086) and Sell TRADE (1,119).

Copper is trading at a 20-month high as China’s manufacturing expansion and shrinking global inventories helping drive copper higher.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.38) and Sell TRADE (3.60).

In early trading, equity futures are trading above fair value in response to strong gains seen across Asian and European markets today.  As we look at today’s set up the range for the S&P 500 is 18 points or 0.9% (1,159) downside and 0.7% (1,177) upside. 

Today's MACRO highlights are:

  • March Challenger Job Cuts
  • Initial Jobless Claims
  • March ISM Manufacturing
  • February Construction Spending
  • Natural Gas Inventories

Howard Penney

Managing Director

US STRATEGY - DON'T GET FOOLED - S P

 

US STRATEGY - DON'T GET FOOLED - DOLLAR

 

US STRATEGY - DON'T GET FOOLED - VIX

 

US STRATEGY - DON'T GET FOOLED - OIL

US STRATEGY - DON'T GET FOOLED - GOLD

 

US STRATEGY - DON'T GET FOOLED - COPPER