Heading into yesterday’s close the US market was mixed on extremely light volume. The S&P 500 closed up one point to close at 1078, while the Russell 2000 closed down 1.2%, to close at 621. The RISK trade continues to fade despite optimism over corporate earnings and waning concerns over budget deficits in Europe.
After the close, Alcoa beat recently lowered EPS estimates and commented that demand will remain strong in 2H10. The news out of Europe is also supportive of higher equity prices as Greece sold bills today at a yield lower than it pays the European Union for emergency loans, although Moody’s cut Portugal’s credit rating on the nation’s growing debt burden and “weak” economic outlook.
Yesterday, strength was seen primarily in Technology (XLK), on the back of Software stocks and a 1.1% rise in the SOX ahead of earnings from INTC +1.6% and AMD +0.3%, which report on Tuesday and Thursday, respectively. Yesterday, MSFT rose 2.3% on a sell-side upgrade, while AAPL declined 1.0% on the negative Consumer Reports commentary on the iPhone 4.
Yesterday, Treasuries were mixed and the VIX declined for the seventh day in a row. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (23.73) and Sell Trade (29.15).
The dollar index traded up 0.3% on the fading RISK trade. The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (83.10) and Sell Trade (85.67).
Despite waning debt concerns in Europe, the euro declined slightly on Monday and looking to trade lower for the third day in a row. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.23) and Sell Trade (1.28).
Yesterday’s weakness was centered in commodities and commodity-related stocks. The three worst performing sectors yesterday were Materials (XLB), Industrials (XLI) and Energy (XLE). In addition, Oil, Copper and Gold declined yesterday; Natural Gas outperformed but still declined.
Copper prices fell for the first time in six days after a report showed imports fell in China. Shipments of copper and products into China declined 17% earlier to 328,231 metric tons in June. Imports have now fallen for three straight months. The S&P Metal & Mining Index declined 2.6% and coal stocks were down 1.6%. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.86) and Sell Trade (3.07).
The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,184) and Sell Trade (1,226).
Crude oil dropped for the first time in four days as the dollar strengthened against the euro; yesterday Oil fell 1.5% to close at 75.28. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (71.36) and Sell Trade (77.58).
As we look at today’s set up for the S&P 500, the range is 44 points or 2.9% (1,048) downside and 1.2% (1,092) upside. Equity futures are trading above fair value, supported by AA earnings trends. The MACRO calendar heats up toward the end of the week.