It takes two to speak the truth. One to speak and another to listen.
    --Henry David Thoreau


Yesterday, the S&P 500 fell amid rumors that China may consider reducing its investment in European government bonds, creating a very bearish close for the S&P 500; lower-highs on the open; lower-YTD-closing-lows on the close.  We are waking up to a big rally in Europe and Asia, as China said it remains a long-term investor in Europe.   Commodities are rallying across the board with the exception of gold.  One of our favorite sayings last year was that President Obama needs to “shake hands with the client.”   The power of the Chinese continues to grow.  I hope we, as a nation, are listening.


Consistent with our 1Q10 theme “Chinese Ox in a Box,” the Chinese market rolled over in Q1, taking down the US market in 2Q10 - “April Flowers, May Showers.”  Concern of an overheating Chinese economy has had broad implications for commodities and the REFLATION trade.  The Chinese market officially “crashed” in early May, putting copper and crude in a bearish formation, which both have a very high correlation to Energy (XLE) and Materials (XLB).   


With the Chinese market up in four of the last five days, commodities prices are starting to rally (China was up 1.1% last night.)  Yesterday, the CRB closed at 253, up 1.4%.  Crude closed at 71.55, up 4% and is trading higher again today.   The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (68.51) and Sell Trade (73.78).


Yesterday, Treasuries were weaker despite the pullback in stocks.  The Dollar index was up 0.39% to $87.12.  The DXY is looking slightly lower today.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (84.08) and Sell Trade (87.18).  We are short the Dollar. 


Another sharp downturn in the EURO may have also weighed on sentiment yesterday, but the EURO held our level of $1.21 and is trading higher today.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.21) and Sell Trade (1.24).


The notable stand out in yesterday’s weakness was Technology (XLK).  The downward pressure was attributed to comments from MSFT (down 4.1% yesterday) CEO Steve Ballmer, who reportedly said that the fallout from the fiscal crisis will not be limited to Europe and the company may have to shift its focus elsewhere in Asia given the impact of China's enforcement laws.   There have also been a number of articles recently criticizing the CEO’s performance and suggesting he should maybe step down.  The S&P Software index fell 2.6% yesterday.   


On the MACRO front in the US, April housing data continued to come in ahead of expectations as new home sales surged 15% following an upwardly revised 30% gain in March.  Not surprisingly, housing-leveraged stocks were among the best performers yesterday; HOV +1.5%, SPF +0.9% and LEN +0.5% were among the big gainers.  TOL was up 0.8% despite a somewhat disappointing April quarter, but all is forgiven with outsized order volume growth.


The VIX remains in a bullish formation and was up 1.1% yesterday.  The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (27.23) and Sell Trade (44.95).


As the demand outlook improves, so goes copper.  China up, copper up!  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.01) and Sell Trade (3.18).    


For the time being, gold may have seen its day in the sun.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,204) and Sell Trade (1,240).


As we look at today’s set up for the S&P 500, the range is 55 points or 2.3% (1,043) downside and 2.8% (1,098) upside. Equity futures are trading above fair value following Wednesday's late day sell-off, which saw gains reversed with Technology stocks leading the decline.


On the economic front, to be reported today are:

  • Q1 GDP (2nd read)
  • Personal Consumption
  • Core PCE
  • Initial Jobless Claims
  • Natural Gas Inventories
  • Treasury Secretary Geithner and German Finance Minister Wolfgang Schaeuble hold press conf 

Howard Penney













Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more