Friday, July 23, 2010

Stocks Higher into Final Hour on Falling Sovereign Debt Angst, Less Economic Fear, Short-Covering, Technical Buying

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Above Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 23.55 -4.38%
  • ISE Sentiment Index 119.0 +4.39%
  • Total Put/Call .80 -1.23%
  • NYSE Arms 1.01 +46.76%
Credit Investor Angst:
  • North American Investment Grade CDS Index 107.42 bps -1.34%
  • European Financial Sector CDS Index 123.38 bps +2.52%
  • Western Europe Sovereign Debt CDS Index 127.67 bps -3.19%
  • Emerging Market CDS Index 231.53 bps -.90%
  • 2-Year Swap Spread 24.0 +3 bps
  • TED Spread 35.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 241.0 +4 bps
  • China Import Iron Ore Spot $127.0/Metric Tonne +1.76%
  • Citi US Economic Surprise Index -37.0 -.2 point
  • 10-Year TIPS Spread 1.76% +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +115 open in Japan
  • DAX Futures: Indicating +24 open in Germany
  • Higher: On gains in my Medical, Retail, Biotech and Technology long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs, despite worries over the usefulness of the European bank stress test results. On the positive side, Education, Road&Rail, Gaming, Steel, Alt Energy, Construction, Homebuilding, Paper and Ag stocks are especially strong, rising 1.5%+. Small-cap and cyclical shares are outperforming again and the Transports continue to trade very well, moving convincingly through their 50-day moving average. Copper is rising another +.9%. The European Investment Grade CDS Index is falling another -1.5% to 110.92 bps. The UK sovereign cds is falling another -4.98% to 69.83 bps, which is the lowest level since mid-March. The 10-year yield is rising +5 bps to session highs, which is also a positive. China Import Iron Ore spot continues its recent bounce higher after sharp declines and lumber has traded better over the last 4 days, rising another +1.44% today. On the negative side, Drug, Restaurant, Oil Service and Utility shares are lower on the day. The Hungary sovereign cds is climbing +2.8% to 344.31 bps and the 2-year swap spread is rebounding a bit, which are negatives. As expected, the European bank stress tests did not include key things that investors wanted to see. However, the market's reaction to this lack of clarity is a major psychological positive. More stringent parameters will be applied to these tests over the weekend by analysts, which will likely provide much more clarity early next week. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, diminishing sovereign debt angst and technical buying.

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