Another day of being confidently mixed - the S&P 500 finished mixed and little changed on a quiet Monday. The major indices opened up strong, but ended up closing near their lows on the day. Moody’s downgrade of Greece sovereign debt to junk was key driver of lower prices. There was some positive news out of Europe in the form of a better than expected industrial production number.
The BP oil spill situation and Obama continued to provide the bulk of the headlines. BP closed down 10%. The dollar and gold were weaker on the day; oil and other commodities were stronger (though the commodity equities were weaker).
The best performing sectors were Utilities (XLU +0.6%), Consumer Staples (XLP +0.6%) and Consumer Discretionary (XLY +0.3%). The Hedgeye Risk Management models still have Energy (XLE) and Utilities (XLU) positive on TRADE; there are no companies positive on TREND. The three worst performing sectors yesterday were Materials (XLB - 1.0%), Energy (XLE - 0.5%), Financials (XLF - 0.4%).
Precious metals/miners underperformed, with the XAU down 1.5%. Stocks contributing to the underperformance were; CF (5.0%), DOW (3.1%) and MON (2.4%).
The DXY declined 1.1% on Monday and the Hedgeye Risk Management models have the following levels for the USD – Buy Trade (86.42) and Sell Trade (88.51). The VIX declined only 0.7%, but is down 21.8% over the past week. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (26.21) and Sell Trade (33.05). The TED spread has expanded further to 0.46 as investors look to T-Bills for security.
In early trading, the EURO is trading higher by 0.4%, after rising 1.1% yesterday. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.18) and Sell Trade (1.23).
On the MACRO front, there was some positive economic data out of the Europe, with continued sovereign debt issues mixed in. Eurozone April Industrial Production grew 9.5% year-over-year vs. consensus +8.7% and prior revised +7.7% (+0.8% m/m vs. consensus +0.5% and prior revised +1.5%). Spanish officials did admit that a freeze up in interbank lending was affecting Spanish banks and Greece was downgraded midday by Moody’s to Ba1 from A3.
The Financials (XLF) also underperformed, with the BKX lower by 0.8% on continued reporting of possible regulation, especially as related to swaps trading desks. It was also reported that Senator Lincoln was considering compromise on her provision.
The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (73.57) and Sell Trade (76.97).
In early trading, Copper fell in London, ending the longest rally in more than five months, as the dollar strengthened after Greece’s credit rating was cut to junk, reviving concern about Europe’s sovereign debt crisis. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.88) and Sell Trade (3.05).
Gold futures may extend their previous day's losses on Tuesday tracking a higher dollar. The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,216) and Sell Trade (1,244).
As we look at today’s set up for the S&P 500, the range is 19 points or 0.7% (1,082) downside and 1.0% (1,101) upside. Equity futures are trading above fair value after equity markets gave up a triple digit gain near the end of Monday's session due to Moody's downgrading of Greece's sovereign rating to junk.