US STRATEGY – UP MARKET, DOWN VOLUME

U.S. market saw weak volume on yesterday’s rally. 

 

TODAY’S SET UP

As we look at today’s set up for the S&P 500, the range is 20 points or 1.0% (1,083) downside and 0.9% (1,103) upside.  Equity futures are trading mixed ahead of the European banking stress tests results due at noon.  Analysts expect between 5-10 banks to have failed and will need to raise additional capital.

 

HEADLINES IN EUROPE

Moody's Investors Service said it placed Hungary's credit rating on review for a possible downgrade after the government was unable to reach agreement with international donors on fiscal targets.

The U.K. economy grew almost twice as much as economists forecasted in 2Q10.  Gross domestic product rose 1.1% after increasing 0.3% last quarter.  Economists forecasted 0.6% growth, according to Bloomberg. 

German business confidence unexpectedly surged to a three-year high in July after exports boomed and economic growth accelerated. The IFO institute said its business climate index, based on a survey of 7,000 executives, jumped to 106.2, the highest since July 2007, from 101.8 in June.

 

THE HEDGEYE GLOBAL MACRO LOOK:

Overnight the MSCI Asia Pacific Index end the week higher for the third straight week.  China closed up another 0.4% last night, bringing the weeklong rally to 6.1%; China was the best performing market in the world last week.  The improving sentiment in China is due in part to speculation about some relaxation of property tightening measures.  China is still broken on TREND.

Copper was up 2.3% yesterday to close at 3.18, 0.01 below the TRADE line of resistance.  Oil is trading near its intermediate TRADE line of resistance of 79.12.  Yesterday, we shorted copper (JJC).  

Treasuries were weaker yesterday with the strength in global equities.

Europe was another bright spot on the back of the upside surprises in the flash Euro zone manufacturing, services and composite PMIs for July.

Yesterday, the S&P rallied on decelerating volume, while the down days are on accelerating volume; a bearish sign.

 

SECTORS

The Industrials (XLI) sector provided a nice chunk of upside leadership in the S&P 500.  Strength was fairly broad-based, though Transports +3.9% were the standout after UPS +5.2% beat consensus EPS expectations for Q2 on margin upside, while the company also raised 2010 guidance above the Street.

The rail companies were another bright spot following a meaningful EPS beat from UNP +4.8% on a lower-than-expected operating ratio.

Housing-leveraged stocks were among the best performers today with the XHB +3.7%. Recall that the group rallied nearly 4% on Tuesday despite the weaker-than-expected June housing starts data.

The third best performing sector yesterday was the Financials (XLF).  Along with the asset managers, which rallied on the back of an unexpected improvement in Q2 flows at JNS +11.8%, the financials were underpinned by the strength in the banking group, with the BKX +3.9%. Regional’s provided the upside leadership. 

Howard Penney

Managing Director

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US STRATEGY – UP MARKET, DOWN VOLUME - DOLLAR

 

US STRATEGY – UP MARKET, DOWN VOLUME - VIX

 

US STRATEGY – UP MARKET, DOWN VOLUME - OIL

 

US STRATEGY – UP MARKET, DOWN VOLUME - GOLD

 

US STRATEGY – UP MARKET, DOWN VOLUME - COPPER