US STRATEGY – UNCONVINCING

The S&P 500 finished higher (up 0.4%) on Thursday, but the move was choppy and unconvincing.  The RISK trade continues to outperform, but the underlying risk factors don’t support the move as volatility continues to reflect the heightened uncertainty surrounding a number of key MACRO drivers for stocks.

 

Some of the unsettling factors are:

 

(1)    Volume declining sequentially for three straight days.

(2)    Negative Advance/Decline line.

(3)    VIX declined yesterday, but is in a bullish formation.

(4)    The DXY is up, Euro down.

(5)    Copper is down for four straight days - Broken on TRADE and TREND.

(6)    China is still in CRASH territory.

(7)    Hedgeye RM sector studies are bearish

(8)    Three-month LIBOR has risen to 0.5378%

(9)    Although it has come in today, the TED spread has widened considerably this week

 

The potential contagion from the fiscal pressures in countries throughout Europe will continue to plague the financial sector.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.21) and Sell Trade (1.23).  The Financials (XLF) was one of two sectors that declined yesterday.

 

The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (85.52) and Sell Trade (87.63).  The VIX declined by 2.3%, but still remains in a bullish formation.  The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (29.11) and Sell Trade (41.12). 

 

While the CRB rallied by 0.83% yesterday, the impact from China's efforts to cool an overheating property market and the earnings hit from the Gulf of Mexico moratorium may not completely factored in to commodity demand, which may suggest further downside.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (72.20) and Sell Trade (76.12).

 

The Materials (XLB) sector was the worst performer yesterday and the other sector that declined alongside the Financials (XLF).  China seemed to be one of the bigger drivers of today's pullback in the industrial metals and related equities.  Yesterday, Copper declined 3% and is looking down for four straight days.  Copper is now down 9.7% year-to-date.  The Ag chemicals group also came under some pressure today with CF (3.5%) and MOS (3.4%) among the worst performers.  A notable divergence in the REFLATION trade was the Energy sector (XLE), which caught a bid as crude rose 2.4%.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.95) and Sell Trade (3.03). 

 

A notable standout to the upside was Technology (XLK); the software group was one of the bright spots in the sector.   The Internet group also fared well with EBAY +4.4%, GOOG +2.5%, YHOO +1.7%, and DELL +4.9%.  Dell Inc. Chief Executive Officer Michael Dell said he has considered taking the company private.  After rallying more than 3.5% on Wednesday, the semi group finished higher again today with the SOX +1.2%; the semi-cap equipment names were among the best performers in the group.

 

Looking at the Hedgeye sector models, the Consumer Discretionary (XLY) remains the only sector that is positive on TREND, although the underlying names are running into a brick wall.  Yesterday’s May same-store sales data did not seem to provide any meaningful overall direction for the S&P Retail Index, which underperformed.  The Thomson Reuters same-store sales index rose 2.5% in May vs. consensus expectations for a 2.6% increase. While total comps came in below expectations for a second straight month, a number of companies noted a pickup in sales in the back half of the month stemming from better weather.

 

The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,202) and Sell Trade (1,237).   

 

As we look at today’s set up for the S&P 500, the range is 34 points or 2.3% (1,077) downside and 0.7% (1,111) upside.  Equity futures are trading above fair value after posting their first consecutive gain in over a month with investors poised for May's nonfarm payrolls due at 08:30am.

 

On the economic front to be reported today will be:

  • Euro zone Q1 preliminary GDP +0.6% y/y vs. consensus 0.5%
  • US Nonfarm Payrolls (May) consensus 500K
  • US Private Payrolls (May) consensus 175K
  • US Manufacturing Payrolls (May) consensus 35K
  • US Unemployment Rate (May) consensus 9.8%
  • US Average Hourly Earnings MoM (May) consensus 0.1%
  • US Average Weekly Hours (May) consensus 34.1

Howard Penney

 

US STRATEGY – UNCONVINCING - S P

 

US STRATEGY – UNCONVINCING - DOLLAR

 

US STRATEGY – UNCONVINCING - VIX

 

US STRATEGY – UNCONVINCING - OIL

 

US STRATEGY – UNCONVINCING - GOLD

 

US STRATEGY – UNCONVINCING - COPPER


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

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more