US STRATEGY - BEAR MARKET MACRO

TODAY’S SET UP

 

As we look at today’s set up for the S&P 500, the range is 46 points or 3.1% (1,032) downside and 1.2% (1,078) upside.  Equity futures are trading above fair value, with little MACRO data points today. 

 

Consistent with our BEAR MARKET MACRO theme, the potential for a "double-dip" recession gained momentum last week.  Weaker than expected reports on retail sales, industrial production and trade activity this week all showed that economic activity has slowed in the second quarter, suggesting not only a slowing of GDP growth in 2Q10, the but the potential for quarterly GDP contraction in 3Q10 or 4Q10.  Consensus expectations are for stronger second-quarter numbers, with continuing growth for the balance of the year.

 

The EURO is trading higher (the EURO traded higher 4 out of 5 days last week) despite Moody’s downgrade of Ireland.   The Euro continues to confound the "parity" parrots; now breaking out above our TREND line of 1.27 with the US Dollar in a bearish formation.

 

Starting out this week there are only two sectors positive on TRADE - Utilities (XLU) and Consumer Staples (XLP) - and the XLU is the only sector positive on TREND.  

 

THE EARNINGS SEASON

 

According to Street Account, last week there were 23 companies in the S&P 500 that reported earnings. 86% of those companies beat on earnings and 75% beat on revenue.  For the earnings season-to-date, there have been 50 companies report earnings; 84% beat on EPS and 70% beat on revenue.  The EPS trends are only slightly better than the 82% seen in 1Q10.  Historically, it is generally believed that the portion of companies that beat EPS expectations tends to be in the mid 60-70%, with 1Q10 seeing a better than average showing. 

 

With the exception of the Financials, the takeaways from the first week of earnings are largely positive, with most companies talking up the trends for 3Q10 and the 2H10.  On Friday, the BKX was down 5.7% and declined 4.7% for the week.  This week we will hear from GS and MS.

 

Last week, Technology (XLK) declined only slightly on the heels of strong earnings from INTC and AMD.  INTC reported a blowout, with revenue and earnings well ahead of expectations and solid top line outlook that comes with a margin expansion story.  AMD followed suit with a similarly upbeat report and commentary.  GOOG kicked off internet earnings with a mixed report - revenue trends remand strong, but increased spending which pressured margins. 

 

THE HEDGEYE MACRO TRADE RANGES FOR 7/19/10

 

 US STRATEGY - BEAR MARKET MACRO - spxsetup

 

US STRATEGY - BEAR MARKET MACRO - equities 719

 

US STRATEGY - BEAR MARKET MACRO - dollar 719

 

US STRATEGY - BEAR MARKET MACRO - vix 719

 

US STRATEGY - BEAR MARKET MACRO - oil 719

 

US STRATEGY - BEAR MARKET MACRO - gold 719

 

US STRATEGY - BEAR MARKET MACRO - copper 719


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