Thursday, March 11, 2010

Stocks Reversing Higher into Final Hour on Less Financial Sector Pessimism, Short-Covering, Technical Buying, Stable Long-Term Rates


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Every Sector Rising
  • Volume: Above Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 30.04 -26.67%
  • ISE Sentiment Index 80.0 +35.59%
  • Total Put/Call 1.05 -12.50%
  • NYSE Arms .91 -61.08%
Credit Investor Angst:
  • North American Investment Grade CDS Index 102.45 bps -21.08%
  • European Financial Sector CDS Index 118.48 bps -27.84%
  • Western Europe Sovereign Debt CDS Index 119.0 bps -26.84%
  • Emerging Market CDS Index 241.23 bps -17.87%
  • 2-Year Swap Spread 28.0 -10 bps
  • TED Spread 28.0 -3 bps
Economic Gauges:
  • 3-Month T-Bill Yield .15% +3 bps
  • Yield Curve 268.0 +7 bps
  • China Import Iron Ore Spot $175.50/Metric Tonne +.29%
  • Citi US Economic Surprise Index +14.70 +3.2 points
  • 10-Year TIPS Spread 2.24% +9 bps
Overseas Futures:
  • Nikkei Futures: Indicating +140 open in Japan
  • DAX Futures: Indicating -42 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Biotech, Retail, Medical and Tech long positions
  • Disclosed Trades: Covered some of my (IWM), (QQQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as equities trade substantially higher on decent volume despite a very muted bounce in the euro. On the positive side, Homebuilding, Steel, Oil Tanker, Coal and Airline stocks are especially strong, rising 6.0%+. The Spain sovereign cds is falling -31.77% to 162.90 bps and the eurozone investment grade cds index is plunging -22.2% to 94.66 bps, which are large positives. Oil is only 2.3% higher despite its recent decline and huge equity move higher. This is likely due to continuing worries over slowing global demand and the muted bounce in the euro. On the negative side, Telecom, Gold, Defense, Utility, Oil Service, Ag, Medical, Biotech, Drug and Education shares are underperforming today. The Shanghai Composite continues to trade poorly, just barely rising last night. The Japan sovereign CDS is up +9.2% today to 76.75 bps. The Libor-OIS spread is rising another +1 bp today to 19.0 bps. The 30-day asset-backed commercial paper yield is rising 2 bps to 31 bps, which is the highest since Dec. 4, 2009. Today's equity market reaction to Europe's actions is about what I would have expected, but the small rise in the euro is a large red flag, especially given how short traders are positioned against the currency. Part of the market's recent sell-off was related to the euro's disorderly decline. This bares close monitoring. Over the longer-term I still expect more weakness in the euro. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less sovereign debt fear, diminishing financial sector pessimism and bargain-hunting.

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