Friday, May 28, 2010

Stocks Lower into Final Hour on North Korea Worries, Euro Drop, Technical Selling, Rising Economic Pessimism


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 31.76 +6.97%
  • ISE Sentiment Index 92.0 -9.80%
  • Total Put/Call 1.30 +23.81%
  • NYSE Arms 1.81 +444.85%
Credit Investor Angst:
  • North American Investment Grade CDS Index 118.58 bps +.86%
  • European Financial Sector CDS Index 149.64 bps -.60%
  • Western Europe Sovereign Debt CDS Index 136.0 bps -5.56%
  • Emerging Market CDS Index 277.95 bps +1.13%
  • 2-Year Swap Spread 46.0 +4 bps
  • TED Spread 39.0 +2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .15% -1 bp
  • Yield Curve 251.0 +3 bps
  • China Import Iron Ore Spot $142.70/Metric Tonne +1.54%
  • Citi US Economic Surprise Index +21.70 -8.6 points
  • 10-Year TIPS Spread 2.03% -5 bps
Overseas Futures:
  • Nikkei Futures: Indicating -17 open in Japan
  • DAX Futures: Indicating -7 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Medical, Technology and Retail long positions
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and and then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 cuts losses into the close after a mid-day swoon despite more euro weakness and worries over North Korea. On the positive side, HMO, Utility, Education, Road&Rail, Drug, Software and Defense stocks are slightly higher on the day. The Spain sovereign cds is falling -7.3% to 217.63 bps, despite the Fitch downgrade of Spain's debt. The Japan sovereign cds is also down -6.1% to 89.0 bps. Several key investor angst gauges are spiking again, which is also a large positive. On the negative side, Airline, Tobacco, Insurance, I-Banking, Bank, Networking, Disk Drive, Internet, Oil Service, Energy, Oil Tanker and Alt Energy shares are especially weak, falling 1.5%+. Cyclicals are underperforming. One of my longs, (AAPL), continues to trade very well. I still view the shares as very compelling around current levels and the stock should continue to substantially outperform the broad market over the longer-term. Month-end profit-taking by short-sellers and long bargain hunters are likely putting a floor under stocks ahead of a holiday weekend. The next 7-10 days will be critical in determining whether or not the correction has run its course or another bear market has begun. I expect US stocks to trade mixed-to-lower into the close from current levels on North Korea worries, Euro Drop, Technical Selling, Rising Economic Concerns and China Bubble Fears.

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