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Now that there’s blood in the water, here come the sharks.  Germany and the UK calling for probe of Goldman Sachs.  What about Goldman’s link to Greece and its financial problems?  BofA/ML, Morgan - are they innocent?  What is to come of financial reform?

Time to pull up a chair and settle in, as we could be here for a while… For those trading GS today, the Hedgeye Risk Management models have levels for GS is: buy TRADE ($131) and sell TRADE ($164)

On the Goldman news the S&P finished down 1.6% on a big spike in volume and volatility.  Volume was up 54% day-over-day and the VIX surged 15.0%.  The Hedgeye Risk Management models have levels for the VIX at: buy TRADE (17.08) and sell TRADE (19.67). 

The Hedgeye Risk management models have Utilities (XLU) broken on both TRADE and TREND, while Healthcare (XLV) is now broken on TRADE.

Friday’s carnage did not seem excessive and the mayhem seemed orderly.  The uncertainty over what happens next is what's important, especially considering that the financial regulatory reform bill is expected on the Senate floor next week.  The question surrounding the financials centers around what the business model looks like and how to value the cash flow streams.  This issue will plague the financials for the coming months. 

Fridays’ MACRO day points were mixed at best, although the housing data numbers were higher than expected.  March housing starts were 626,000 vs. consensus 610,000, and February was revised to 616,000 from 575,000.  Building permits were 685,000 vs. consensus 625,000, and February was revised to 637,000 from 612,000. Preliminary April University of Michigan Confidence was a bomb at 69.5, well below consensus 75.0. The final reading for March was 73.6. Lastly, the Eurozone March CPI was +1.4% year-over-years vs. consensus +1.5% and prior +0.9%; although an increase, consumer prices are still below the ECB’s target.

Along with Financials (XLF), Industrials (XLI), Materials (XLB), and Energy (XLE) all underperformed on Friday.  All of these sectors came under pressure as the dollar rallies and commodities collapsed. The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (79.61) and sell TRADE (80.88). 

The CRB declined 1.25% on the day.  On Friday, OIL traded down 2.97% and is currently trading at a three week low on the Goldman news.  The Hedgeye Risk Management models have the following levels for OIL – Buy TRADE (79.82) and Sell TRADE (83.43). 

In early trading, gold is trading at a two-week low.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,123) and Sell TRADE (1,150).

Copper fell to a three-week low in as investors shied away from riskier assets including commodities after U.S. regulators sued Goldman Sachs Group Inc. for alleged fraud.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.34) and Sell TRADE (3.59).

In early trading, equity futures are trading below fair value in continued global reaction to Friday's move by the SEC to charge Goldman of civil fraud.  Citi's Q1 earnings before the bell are expected to show a significant improvement year-over-year.  As we look at today’s set up the range for the S&P 500 is 39 points or 1.4% (1,175) downside and 1.8% (1,214) upside. 

On the MACRO calendar today:

  • March Leading Indicators

Howard Penney

Managing Director

 

US STRATEGY - BLOOD IN THE WATER - S P

 

US STRATEGY - BLOOD IN THE WATER - DOLLAR

 

US STRATEGY - BLOOD IN THE WATER - VIX

 

US STRATEGY - BLOOD IN THE WATER - OIL

 

US STRATEGY - BLOOD IN THE WATER - GOLD

 

US STRATEGY - BLOOD IN THE WATER - COPPER