US STRATEGY – MACRO MOVES

Overnight Global markets rose for a 10th day, the longest rally in 11 months, as oil and copper are higher and Treasuries are lower after China signaled it will relax the Yuan’s fixed rate to the dollar. 

The S&P 500 finished fairly flat on Friday, with the strength coming from only three sectors Financials (XLF), Materials (XLB) and Energy (XLE).  Volume was up 53% day-over-day, which was largely a function of quarterly options and futures expiration, as well as the quarterly S&P 500 rebalancing.

With no MACRO news-flow on Friday, the NASDAQ and Russell 2000 all traded in a tight range as the markets took no real direction throughout the day.  Treasuries were little changed and the dollar index was flat on the day.  The DXY declined by 0.4% yesterday and the Hedgeye Risk Management models have the following levels for the USD – Buy Trade (84.89) and Sell Trade (86.61).  The only factor in the model to make a convincing move in either direction was the VIX which was down 4.39% on Friday and 16% for the week.  The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (23.41) and Sell Trade (31.93).

The three best performing sectors on Friday were Financials (XLF +0.3%), Energy (XLE +0.2%) and Materials (XLB +0.1%).  The Oil Service index was up 1.8% on Friday and 5.5% for the week.  Crude traded up 0.5% to 77.18; RIG (+10.3%), APC (+2.3%) and HAL (+2.2%) were the notable gainers on the day and BP rose 0.2%.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade ($73.79) and Sell Trade ($79.56).

The S&P Materials Index +0.50% rallied on easing MACRO concerns. CAT +1.4% reported improved machine sales and encouraging strength in Asia, especially China, which pared some investor concerns about Asian demand, especially from the materials sector.  In early trading, Copper rose the most in a month in London on speculation a stronger Yuan may accelerate imports into China.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.99) and Sell Trade (3.05).

Commodities continued the move to the upside, with the CRB up 1% for the week.  The Philadelphia Gold and Silver index moved up 1.8% along with a continued climb in the commodities.  Gold closed at $1,259, up 0.9% on the day.  Gold remains in a bullish formation and we are long.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,233) and Sell Trade (1,258).  

Rounding out the top performing sectors on Friday was Financials (XLF).  Looking ahead, financial reform will see a busy push in DC as the summer approaches.  The AMEX BioTech index rose 1.1% on the day, as AMLN was up +19.9% on Roche’s 12-18 month delay for taspoglutide.

Underperforming for the third day in a row was Consumer Staples (XLP -1.1%) and Consumer Discretionary (XLY -0.6%).  Leading the XLY lower was the Homebuilders, with the S&P 500 Homebuilding index (-2.2%) continued to decline on weakness following yesterday’s worries about fading demand after the homebuyer tax credit expiration.  Lennar led the group down, declining 3.7% on the day. 

The EURO has rallied for the past two weeks, rising 2.2% last week.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade ($1.22) and Sell Trade ($1.24). 

As we look at today’s set up for the S&P 500, the range is 47 points or 1.8% (1,097) downside and 2.4% (1,144) upside.  Equity futures are trading above fair value after China announced it has effectively abandoned its dollar peg thereby allowing some flexibility in its exchange rate. There are no economic or corporate releases scheduled for today but Wednesday's FOMC Policy Announcement will take center stage in what is a busy week for data.

Howard Penney

 

US STRATEGY – MACRO MOVES - S P

 

US STRATEGY – MACRO MOVES - DOLLAR

 

US STRATEGY – MACRO MOVES - VIX

 

US STRATEGY – MACRO MOVES - OIL

 

US STRATEGY – MACRO MOVES - GOLD

 

US STRATEGY – MACRO MOVES - COPPER