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Under The HEDGE - April 2, 2012

|Includes:ANF, C, FDO, HP Inc. (HPQ), JWN, KATE, KORS, MS, PNC

This week wraps up a very good quarter for the Dow, S&P and NASDAQ and sets us up for Quarter 2. We believe that company earnings expectations are set too high for the coming earnings season, so there is potential for downside. We do not focus on praise for past performance, because there is always another trading day tomorrow and that is the one that counts. What do you do with the profits from Q1, what about OIL and will the AUDUSD slow down due to China's either hard or soft landing? We will lay out a hedged strategy for this shortened trading week and we will give you some real opportunities to make some good trades.

Commodity Chatter

Here is the play for the week from the pits. BUY WTI and Brent Crude. We are oil bulls for the upcoming week based on increased demand, potential supply shock and a technical bounce is due. Here are the levels we see in this trade; WTI 1.04 as a good starting point for the trade, limit set and 1.08 and stop at 99 / Brent 123 as our start, with a limit set at 126 and our stop set at 119. Again, I must say, we are big BUYERS of OIL. Also, this looks like an interesting place to get back into Gold if you have been on the sidelines for a while. Silver is our metal of choice, but Gold is equally as good. I would look to get into silver here at 32.50 and ride it up to 35, with a stop at 29.80. We DO NOT like Copper at all in any way. If you believe this is a bad idea from us, just look at the chart of FCX over the past two months. We are also seeing opportunities in CORN this week and looks like it could hit 675 this week, if we can get a good oil rally going. Corn is not one of our favorite trades, but if you believe that oil is heading higher than CORN should head up as well. As a side note, Nat Gas is looking at our target in the face around 2.10, but only buy these contracts if you have time for a rebound. We will be heavy buyers around 2.00 to 2.10, but only in the leaps. This is not a short term trade in any way, and there is limited risk, but again, IT NEEDS TIME TO WORK.

Fed Fun in Fixed Finance

There will be several Fed Governors speaking this week, which always holds the potential to send the markets running lower, but I would worry more about the Fed's all-out assault on Gold. We saw a little bit of flattening of the yield curve towards the end of the week, and we see more upside in the US10YR, if the earnings come in weak this month. My strategy is shorting US20YR notes and going long US10YR notes. I would also look to trade the TLT as an ETF that follows the long end of the BOND market, for those people that are shaky on trading fixed income.

Currency Corner

In the FX world, we are a bit stunned by the AUD weakness versus the dollar. We are still net long the AUDUSD to the 1.06 level and if the markets are moving higher, we should easily hit this level by Thursday. I would place my stop still at 1.01 and be ready to run if there is a problem in China. We are going to talk about one of our favorite crosses that usually gets zero respect, and that is the EURCHF. This is a good, straight forward trade based on the Swiss Bank's previous position of defending the 1.20 level. It is currently around 1.2040 and we see a 100 pip upside by buying Euros and selling Swiss Francs. I would set the stop at 1.19 and set my limit at 1.2150. These are the two trades we will be focusing on for this week.

Equities Evolution

As earnings season is fast approaching, it is important to pick our spots and look for some value opportunity. We are fans of retail, financials and tech. I have run the numbers and I believe that HPQ is a strong buy at the 23 to 24 range. I would look for HPQ to surprise on the upside this quarter, and we see a price target of 31 for 2012. In the financials we are backing MS, PNC and C. MS is fast becoming one of the best investment banks on Wall Street, PNC is a strong regional bank with a good balance sheet and C has tremendous upside. In 2013 we believe C can earn 8 to 10 bucks a share with an 8X multiple. Two year target on C is 80 and we believe that is a conservative estimate. We are avoiding any insurers!!! In retail, we have found success in LF, KORS and LIZ, and I believe of the three KORS and LF are still buys, even at the current levels. Also look to FDO and JWN to play both sides of the spectrum. We are shorts names that are associated with teens, such as ANF. Get ready for a strong earnings season, but our belief is expectations are FAR too high, so this shoe could fall. My advice is to take profits off the table from the first quarter and prepare to play defensively.

Action Alley

Commodities

 

 

WTI Crude

103.02

Sell WTI and long Brent

Brent Oil

122.88

Sell WTI and LONG Brent

Nat. Gas

2.13

Nat Gas is a buy at 2.00 to 2.10

Copper

382.50

No Position

Gold

1668.35

We are long term long in GLD to 2200

Silver

32.27

We are long term long SLV to 42

Wheat

660.75

No position

Corn

644.00

Long Corn to 780 as long as energy moves higher

Currencies

 

 

EUR/USD

1.3343

Short EURO to 1.3165 and STOP at 1.34

AUD/USD

1.0346

LONG AUD to 1.06 and STOP at 1.0365

USD/JPY

82.86

Long JPY and SHORT USD (Also look for JPY in Commodity space)

EUR/CHF

1.2042

Floor is 1.20, So long EUR versus Swiss

USD/CAD

.9987

No Position

USD/CHF

.9025

No Position

Fixed Income

 

 

3 Month

.07%

No Position

2 Year

.33%

SELL 30's and 10's and Buy 2's

10 Year

2.21%

SELL 30's and 10's and Buy 2's

30 Year

3.34%

SELL 30's and 10's and Buy 2's

Germany

1.79%

No Position

Spain

5.31%

No Position

Italy

5.09%

BUY Italian Bonds and Sell French Bonds

France

2.87%

We are SELLERS of French Debt w/ BUYERS of ITALIAN Debt

Greece

20.02%

QXC position is SELLERS of Greek Debt


We wish you a great trading week and we always value any thoughts of future updates. Please remember to only trade what you can afford to lose, and always think different.
Stocks: HPQ, MS, PNC, C, KORS, KATE, FDO, JWN, ANF