Monday, February 08, 2010
Stocks Lower into Final Hour on Rising Euro Sovereign Debt Fears, More Shorting, Technical Selling
Posted by Gary .....at 3:35 PM
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Retail longs and Emerging Market shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is about average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is falling -1.07% and is high at 25.83. The ISE Sentiment Index is below average at 122.0 and the total put/call is high at .97. Finally, the NYSE Arms has been running above average most of the day, hitting 1.54 at its intraday peak, and is currently 1.33. The Euro Financial Sector Credit Default Swap Index is rising another +6.41% to 97.66 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising +2.45% to 103.24 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is -1 basis point to 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th, 2008. The 2-year swap spread is rising -.80% to 30.57 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +1 basis point to 2.26%, which is down -39 basis points since July 7th, 2008. The 3-month T-Bill is yielding .09%, which is up +1 basis point today. Emerging market shares are underperforming again today. Coal, Gold, Ag, Bank, Insurance, REIT and Education shares are especially weak, falling 1.0%+. (XLF) has been heavy throughout the day. The Euro Financial Sector CDS is surging back to its highs seen on Friday morning, which is a large negative. Moreover, the Western Europe Sovereign CDS is jumping another +4.41% to a new record 110.8 bps. The US sovereign cds is also jumping 5.66% to 56.0 bps. On the positive side, Paper, Disk Drive, Homebuilding, Retail and Airline shares are rising .50%+. Tech sector leaders are continuing their recent trend of outperforming the broad market. Despite a weaker US dollar and rising Iran tensions crude oil and gold continue to trade poorly. Today’s overall market action is disappointing so far as there has been no follow through to Friday’s late session rally with DJIA 10,000 now resistance. Inflation fears in China appear to be intensifying, which is also a large negative. As well, until there is more clarity with regards to the Euro sovereign debt situation, US stocks are likely range-bound at best. Nikkei futures indicate a -26 open in Japan and DAX futures indicate a -40 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, rising Euro sovereign debt fears and technical selling.