US STRATEGY – TIME WILL TELL

Last week ended on a positive tone with the S&P up 5.4%, rising every day last week.  The week’s strong performance left six sectors positive on TRADE and one that is positive on TREND in the Hedgeye Quant models.  All nine sectors closed higher on Friday and for the week. 

 

Until Friday nearly all the MACRO data points pointed to clear slowing in the economy.  May Wholesale Inventories rose 0.5% vs. consensus 0.4%; April’s number was revised to 0.2% from 0.4%.  Whether the rise is ultimately attributed to increased confidence or decreased end demand will be told in future quarters.

 

Last week also benefited from optimism for a strong earnings season from early reporting companies this week.  The first to report will be Alcoa then joined by GOOG, JPM, and GE; giving investors a preview of what's to come from a broad range of sectors.  All four of these stocks are down on average 20% over the past three months.

 

On Friday, for the third day in a row, treasuries were weaker with the dampened risk aversion in the markets and the VIX declined 2.8% yesterday. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (23.73) and Sell Trade (29.36).

 

The U.S. Dollar Index traded in a tight range on Friday and closed down 0.6% for the week.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (82.93) and Sell Trade (84.60).

 

 The EURO declined slightly on Friday, but closed up 0.6% for the week.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.22) and Sell Trade (1.28).

 

The three best performing sectors on Friday were those leveraged to a stronger economy - Materials (XLB +2.4%), Financials (XLF +1.4%) and Industrials (XLI +1.0%). 

 

The XLB benefited from the optimism surrounding Alcoa's upcoming earnings report, and also rising commodity prices; copper and gold traded up over 1% on the day.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.95) and Sell Trade (3.10).

 

The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,184) and Sell Trade (1,227). 

 

Despite the strength in commodity prices Energy (XLE) was the worst performing sector on Friday.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (74.81) and Sell Trade (78.71).  

 

Ahead of some key earnings announcements this week the Financials (XLF) was the second best performing sector on the day.  The move in the XLF was driven by the BKX which was up 2.4%; regionals led the way higher on general optimism for the economic recovery and the beta shift up.

 

As we look at today’s set up for the S&P 500, the range is 42 points or 2.8% (1,048) downside and 1.1% (1,090) upside.   Equity futures are trading below fair value, as we are face with a very quiet MACRO calendar. 

 

Howard Penney

 

US STRATEGY – TIME WILL TELL - S P

 

US STRATEGY – TIME WILL TELL - DOLLAR

 

US STRATEGY – TIME WILL TELL - VIX

 

US STRATEGY – TIME WILL TELL - OIL

 

US STRATEGY – TIME WILL TELL - GOLD

 

US STRATEGY – TIME WILL TELL - COPPER


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