US STRATEGY – GLOBAL LAGGARD

Yesterday, of the 57 global markets we track, the USA was the worst performing.  On a 40% decline in volume the S&P 500 finished lower by 0.4% ahead of very busy week of MARO data points, despite surging overseas market.  There were only two sectors up on the day and the Hedgeye Risk management models have all nine sectors positive on TRADE; the Utilities sector (XLU) is the only sector positive on TREND. 

 

News flow was essentially limited to the news that China would move towards a more flexible approach to the Yuan’s exchange rate; the Yuan’s yawn faded as the day wore on.  Few specifics were offered, other than that a large one time revaluation was ruled out. This news seemed to be offered as a reason for anything and everything that took place in the markets on Monday - retailers were down because of the possibility of increased expense due to a stronger Yuan; miners and other commodity related companies were up on the possibility of increased Chinese purchasing power; treasuries were off on a possible reduction in Chinese demand.

 

Treasuries were weak after China's announcement, but recovered much of their early losses throughout the day.  The DXY rose by 0.27% yesterday and the Hedgeye Risk Management models have the following levels for the USD – Buy Trade (84.92) and Sell Trade (86.65).  The VIX moved higher by 3.9% yesterday but is still down 38% over the past month.  The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (23.47) and Sell Trade (31.91).

 

The euro’s rally stalled yesterday, the currency finishing down 0.34% on the day.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade ($1.22) and Sell Trade ($1.25).

 

The three best performing sectors were Materials (XLB +0.6%), Industrials (XLI +0.2%) and Financials (XLF -0.1%). The bottom three were Utilities (XLI -0.7%), Technology (XLK -0.7%) and Consumer Discretionary (XLY -0.8%).

 

The XLI and XLB were the only two sectors up on the day, although well off the highs of the day.  Copper traded higher by 2% on the day on the news from China and improved Chinese demand would help RECOVERY/REFLATION story.  Notable outperformers were AA +5.5%, DE +2.0%, CAT +0.3% and ITW +1.9%. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.81) and Sell Trade (3.05).

 

Crude is trading lower for the first time in three days, on renewed concern that Europe’s sovereign-debt crisis will slow the RECOVERY trade.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade ($73.82) and Sell Trade ($79.57).

 

Yesterday, Gold did not benefit from the Chinese announcement, with the S&P Global Gold Index down 3% and the XAU (down 2.2%) was weaker as gold and silver moved lower, with notable underperformers being AEM (3.5%), SSRI (4.2%) and PAAS (3.9%).  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,220) and Sell Trade (1,255).    

 

For the past four days, the Consumer Discretionary sector (XLY) has been the worst performing sector.  The XLY is now down 0.4% over the past week, with the S&P 500 up 2.2% over the same time period.  Yesterday, the S&P 500 Retail Index declined 1.9% and the S&P 600 restaurant index declined 2.2%.  The retail concerns were centered on the impact of a stronger Yuan on their top-line growth and margins.

 

As we look at today’s set up for the S&P 500, the range is 44 points or 1.6% (1,095) downside and 2.3% (1,139) upside.  Equity futures are trading above fair value following Monday's decline.  Today will see more important MACRO data points, including Existing Home Sales due at 10:00 AM.

 

Howard Penney

 

US STRATEGY – GLOBAL LAGGARD - S P

 

US STRATEGY – GLOBAL LAGGARD - DOLLAR

 

US STRATEGY – GLOBAL LAGGARD - VIX

 

US STRATEGY – GLOBAL LAGGARD - OIL

 

US STRATEGY – GLOBAL LAGGARD - GOLD

 

US STRATEGY – GLOBAL LAGGARD - COPPER


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