US STRATEGY – HEADING SOUTH

The data points in Global MACRO have turned decidedly negative, putting pressure on the US equity prices; China’s PMI, US jobless claims, US ISM and the US housing market.  The S&P 500 closed lower on Thursday by 0.3%, making 8 of the last 9 days down-days for the market.

Yesterday’s Jobless claims were 472,000 vs. consensus 455,000; prior week revised to 452,000 from 459K - the 4-week average is the highest since March 6th of 466,750.  Continuing claims were reported at 4.616M vs. consensus 4.52M; prior week revised to 4.573M from 4.548M.  June ISM was 56.2 vs. consensus 59.0. 

We are bearish in our outlook for housing and home prices; this is being expressed in out 3Q10 theme of Housing Headwinds.  Yesterday’s May Pending Home Sales declined 30.0% month-to-month versus consensus of a decline of 11.8%.  Pending homes sales for May declined 15.6% year-over-year.

Despite the decidedly negative trends for the consumer, the only two sectors in the green yesterday were consumer related - Consumer Discretionary (XLY up 0.8%) and Consumer Staples (XLP up 0.2%).  The S&P Retail and Restaurant indices were up 1.1%, each. 

Treasuries were mixed with the long-end outperforming in a continued flattening of the curve.  The 10-year traded below 2.90%, before rising again to 2.94% at the end of the day.  The dollar index closed dramatically lower, closing down 1.5% at $84.60.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (83.56) and Sell Trade (86.52).  The VIX moved lower by 4.9% - the Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (30.46) and Sell Trade (36.16). 

With a sharp decline in the Dollar index, it’s worth noting the big spike in the Euro - the Euro traded up 1.5%, closing at 1.2439.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.22) and Sell Trade (1.25).

The three worst performing sectors were Materials (XLB down 0.6%), Healthcare (XLV down 0.9%), and Financials (XLF down 0.9%).   Health insurers CI and WLP were lower on concerns around healthcare reform risk.

This has been a disastrous week for copper, down 4.9% over the last five trading days.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.84) and Sell Trade (2.97).

Yesterday gold saw its biggest decline in two months (April 16).  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,207) and Sell Trade (1,265). 

Oil has declined 5% over the last five days, on slowing global growth.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (72.88) and Sell Trade (75.14).  

As we look at today’s set up for the S&P 500, the range is 57 points or 1.5% (1,012) downside and 4.1% (1,069) upside.   Equity futures are trading mixed ahead of the jobs number.    

Howard Penney

US STRATEGY – HEADING SOUTH - S P

 

US STRATEGY – HEADING SOUTH - DOLLAR

 

US STRATEGY – HEADING SOUTH - VIX

 

US STRATEGY – HEADING SOUTH - OIL

 

US STRATEGY – HEADING SOUTH - GOLD

 

US STRATEGY – HEADING SOUTH - COPPER