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The S&P finished 1.1% higher on a choppy day.  The parts of the market that are leveraged to the RECOVERY trade bounced from an intermediate term oversold condition.  The MACRO headwinds that drove the S&P 500 down 12.7% from the peak remain a constraining factor in our models, as it was a relatively quiet day on the US economic calendar. 

After the close, the ABC Consumer Confidence print was -43 for the week ending June 6th vs. -44 last week.  On Friday, we will get a look at the preliminary U. Of Michigan consumer confidence number, this is expected to improve to 74.5 vs. 73.6.    

Also overnight, China was up 2.8% (down 21.1% YTD) on a Reuters report that the country’s May CPI rose 3.1% year-over-year, May exports grew 50% vs. Bloomberg consensus of 32%, and May new loans were CNY630B vs. Bloomberg CNY600B. The official figures are to be released on June 11th.  China remains a growth story on sale, but timing and price remain important.

Treasuries were weaker yesterday with the focus on this week's auctions, while the dollar index was basically flat on the day.  The Risk Management models have the following levels for the USD – Buy Trade (87.32) and Sell Trade (88.51).  The VIX was down 7.8% and is still in a bullish formation.  The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (31.91) and Sell Trade (38.34).

The Euro saw a late-morning bounce, but gave back the bulk of its run-up fairly quickly, closing up 0.16% on the day.  The Euro is trading down again today as there is a healthy degree of skepticism regarding EU efforts to restore fiscal credibility in the region.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.18) and Sell Trade (1.21).

Commodity equities were among the best performers today, while financials also fared well with a run-up in the banking group led by the regional names.  The Materials (XLB) was the best performer today, rising 2.3%.  Gold continues to move higher with the XAU up 1.3% on the day. While copper is still in a BEARISH formation, the industrial metals names outperformed, with the copper centric names SCCO up 6.3% and FCX up 4.8% leading the way.  Steel stocks snapped a four-day selloff with the S&P Steel Index up 2.7%. DD rose 4.1% led the chemicals group higher after the company reaffirmed FY10 guidance.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.69) and Sell Trade (2.97). 

Despite the deepwater drilling issues, the Energy sector outperformed.  Coal and E&P names were among some of the notable gainers despite the pullback in natural gas. Natural gas has rallied sharply over the last couple of weeks, up 13.2% in the past week.  The oil services group was a laggard, but still managed a decent bounce with the OSX +0.8%. The deepwater drillers suffered with RIG down 5.8%, DO down 3.8% and NE down 1.4%.

Today OPEC said it will need to pump less crude than previously thought this year as production from outside the group increased more than forecast.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (70.64) and Sell Trade (74.83).

Technology (XLK) was the worst performer sector yesterday; the XLK declined 4.6% on Friday and Monday.  The semi group has been under considerable pressure, though yesterday it finished well off its worst levels for the session with the SOX down 0.4%.  Upbeat corporate commentary from ALTR +0.1%, which raised the low-end of its Q2 revenue growth guidance range, failed to provide any support

The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,221) and Sell Trade (1,242).   

As we look at today’s set up for the S&P 500, the range is 37 points or 2.0% (1,041) downside and 1.5% (1,078) upside.  The Mortgage Bankers Association’s application index dropped 12% last week; the refinancing gauge dropped 14%, while purchases fell 5.7% to the lowest level since February 1997.  We continue to be bearish on Housing in 2H10.

Howard Penney