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US STRATEGY - SIGNS OF FATIGUE

The S&P 500 finished slightly higher (+0.18%) in mixed trading on Monday - volume was anemic and the advance/decline number was down significantly.   The trend of waning upside momentum continues; the unknown is how long it will be before that matters.

On the MACRO front, the biggest tailwind for stocks comes from the EU finance minister’s details of a funding package for Greece, though ongoing concerns remain.  In addition, M&A activity and deal speculation are contributing to the froth, as Bloomberg reported that US companies have announced more than $272 billion in M&A activity, up from $213 billion last year.

Yesterday, CPKI confirmed that it is reviewing strategic alternatives, UAL Corp and US Air continued to move higher after the WSJ reported that talks between the two airlines have become "very serious", and shares of PALM surged on the back reports that the company has put itself up for sale. 

The best performing sector yesterday was the Financials (XLF).  The KBW Bank Index was up 4.7% over that last week, and extended its outperformance by 100bps yesterday.  Some of the regional names were notable gainers, while C was the standout among the money-center banks.  For the Financials, the Q1 earnings season is expected to have a positive tone to it. 

The Dollar Index was down 0.65% yesterday and 1.19% over the past two days.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (80.48) and sell TRADE (81.82).

Ahead of the AA earnings the Materials (XLB) was the worst performing sector on the day.  AA reported disappointing revenue numbers, showing that the end markets are not consistent with 5.6% real GDP.  Yesterday the RISK/RECOVERY trade also got a boost from the VIX being down 3.5%.  The Hedgeye Risk Management models have levels for the VIX at: buy TRADE (15.45) and sell TRADE (17.30).

In early trading, Oil is trading down for a fifth day in a row as we are looking at forecasts of an 11th consecutive weekly gain in U.S. crude inventories.  U.S. inventories of crude oil probably rose 1.15 million barrels as imports climbed, according to a Bloomberg News survey. It would be the longest stretch of increases in five years.  The Hedgeye Risk Management models have the following levels for OIL – Buy TRADE (82.84) and Sell TRADE (85.28). 

In early trading gold is trading lower, as the dollar is looking higher.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,136) and Sell TRADE (1,173).

Copper fell for a second day in London on concern that prices at the highest level in more than 20 months maybe too high too fast.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.46) and Sell TRADE (3.63).

In early trading, equity futures are trading below fair value after Alcoa's revenues missed consensus.  As we look at today’s set up the range for the S&P 500 is 17 points or 1.0% (1,184) downside and 0.4% (1,201) upside. 

On the MACRO calendar today:

  • March NFIB Small Business Optimism Index
  • February Trade Balance
  • March Import Prices
  • APR IBD/TIPP Economic Optimism Index
  • ABC Consumer Confidence

Howard Penney

Managing Director

US STRATEGY -  SIGNS OF FATIGUE - S P

 

US STRATEGY -  SIGNS OF FATIGUE - DOLLAR

 

US STRATEGY -  SIGNS OF FATIGUE - VIX

 

US STRATEGY -  SIGNS OF FATIGUE - OIL

 

US STRATEGY -  SIGNS OF FATIGUE - GOLD

 

US STRATEGY -  SIGNS OF FATIGUE - COPPER