Main Points

EURUSD ST– The volatile consolidation continues.Clear signs of tiredness, but won't actively look for a broader downside correction until (if) 55-dma at 1.4767 breaks on a close basis.

USD Index– Same respect of 55-dma, particularly with the USD –ve seasonals. A close above the 55-dma needed to call for a broader turn, stands at 76.15, if achieved would be serious.

Gold– Consolidates against the highs. Broader position squaring may cause it to correct but should be very much a buy on the dip.

Oil– Consolidating too, but $75 should be very good support. Needs to close below to warn of a more serious problem with the uptrend.

Commodity/USD Index – Despite core commodities such as Gold and Oil looking ok our Commodity/USD Index looks very heavy. Warning of position squaring to come?

AUDUSD ST– Above puts AUDUSD in focus, with the pivot region to watch 0.9102-0.8906. A daily close through here would warn of the 200-dma at 0.7968.

AUDUSD LT– Will post a bearish weekly reversal with a close below 0.9195. Gave sharp corrections from the July and November '07 highs.

NZDUSD– Looks the most susceptible of all. Above the 55-dma on a close basis since 17th March, extraordinary period to spend above. Close below leaves 200-dma at 0.6393.

EURAUD and EURNZD– Look like bases forming. Both markets are on track for bullish weekly reversals. Long-EURNZD a very interesting position squaring trade whilst avoiding the USD.

VIX Correlation– As we often highlight EURAUD and EURNZD are positively correlated to the VIX. Therefore now even more important to watch for signals of a base/turn on the VIX/S&P.

S&P– First real supports 1,065-1,054. Certainly looks tired but not a categoric story yet.

Nikkei– This continues to look extremely heavy. Now at the last real support/pivot region; 9,442-9,335. Consolidation possible, but eventual break lower likely.

EuroStoxx50 – Risk of an H&S top developing. This is definitely something to watch closely given how well the same pattern worked on the Nikkei.

EURGBP– Looks like the market has based. This week's lows on the converged 200-dma and 55-wma with multi-month uptrend support just below.

EURNOK– A 76.4 against the low. Not what we wanted to see at all. Also developed against the 200-wma, warns of a period of range trading developing.

U.S. 10-year yields – Right on pivot support at 3.31-3.29%. A daily close below this region would point to the channel base at 3%.

Performance

S&P 500 rose 80 bp this week on the back of strong international data and mixed US data. Materials was the best performing sector for the second week in a row, rising 2.1%. Our 2009 yearend price target of 1060 implies 2.5% downside from current levels.

S&P 500 earnings

Our top-down EPS forecasts of $52 and $75 for 2009 and 2010 reflect +5% and +45% growth,
respectively. Our pre-provision and write-down EPS forecasts are $69 for 2009 and $81 for 2010.
Bottom-up consensus forecasts a 15% increase in 2009 to $57, and a 36% increase in 2010 to $77.

Valuation

Top-down, the S&P 500 trades at an NTM P/E of 15.2X (13.8X on pre-provision EPS). Bottom-up, it
trades at NTM P/E of 14.8X and LTM P/B of 2.4X.

Size and style

Large-cap (S&P 500) underperformed small-cap (Russell 2000) by 20 bp over the past week but
has outperformed by 504 bp ytd. Large-cap Financials underperformed small cap Financials by 254 bp this week.

US Portfolio Strategy baskets

This week we highlight our Growth at a Reasonable Price basket which outperformed the S&P 500 by approx 14 bp this week and has outperformed the market by 1,400 bp YTD. Our BRICs Sales basket underperformed the market by 40 bps this week and our Operating Leverage trade (long
GSTHOPHI/ short GSTHOPLO) fell 54 bps.

S&P 500 stock performance this week

Leaders: S, RF, ETFC, CIEN, ANF. Laggards: JEC, ADSK, SII, LM, GENZ.