The S&P 500 closed higher on Friday, but not enough to put any sector back to positive on TRADE or TREND. After opening sharply lower, the S&P 500 quickly turned higher for the day led by a rally in Financials (XLF) and Materials (XLB). Thursday evening’s Senate vote finally brought some clarity on the potential winners and losers from the pending financial regulation efforts, with the BKX leading the way up 3.98% on the day. Money-center banks outperformed with JPM up 5.9%, BAC up 4.5%, and investment banks also outperformed with GS up 3.3% and MS up 5.7%.
On the MACRO front, there was no major economic data released on Friday and there was little incremental news flow from Europe regarding its sovereign credit concerns.
On Friday, the euro rallied for the fourth straight day, but in early trading today it is giving up some of its recent gains. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.21) and Sell Trade (1.25). Despite this brief reprieve for the euro, the issues in Europe continue to be a drag on sentiment.
The Materials (XLB) was the second best performing sector yesterday, rebounding from Thursday’s sharp decline. Notably, the S&P 500 Steel index closed up 3.2% on the day. On Friday, Copper prices rose 4%; the increase was attributed to Chinese optimism and improved imports numbers. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.01) and Sell Trade (3.28). With the Chinese market up 3.5% overnight and Copper trading up 1%, the XLB outperformance will likely continue.
Precious metals were a decliner on Friday; Gold closed down 0.5% to $1,177, and off the record highs seen on May 12th. The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,182) and Sell Trade (1,215).
Overall, Technology (XLK) underperformed on Friday, but the SOX (+2.50%) outperformed on the day. The sector has seen been under pressure over the past month (down 10.8%), but positive earnings releases this week, and especially guidance upside capped by MRVL (+8.3%) provided the lift.
Over the short-term, elements of "flight to safety" in the U.S. dollar will help to contain short-term U.S. inflation. In early trading, the DXY is currently trading up over 1%, although we suspect that the U.S. dollar has its own issues to face at some point in the intermediate term future. The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (84.23) and Sell Trade (86.97).
Equity futures are trading below fair value following Friday's bounce which came at the end of a volatile week for stocks. As we look at today’s setup, the range for the S&P 500 is 58 points - 18 points or 1.6% (1,070) downside and 40 points or 3.7% (1,128) upside. For the first second day, the Hedgeye Risk management models have 0/9 sectors on TRADE and 0/9 sectors positive on TREND. On the economic front, the April Chicago Fed Nat Activity Index and April Existing Home Sales will be reported today.
Oil is currently trading lower for the tenth straight day, as the Dollar index is surging. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (68.04) and Sell Trade (73.40). In credit markets, the TED spread is at 0.34 this morning and three-month LIBOR has ticked up to 0.496, suggesting that risk perception continues to grow in global markets.