Wednesday, August 11, 2010

Stocks Falling into Final Hour on Rising Economic Fear, Increasing Sovereign Debt Angst, More Financial Sector Pessimism, Technical Selling

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Slightly Above Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 25.31 +13.14%
  • ISE Sentiment Index 126.0 +35.48%
  • Total Put/Call 1.05 +3.96%
  • NYSE Arms 5.12 +267.97%
Credit Investor Angst:
  • North American Investment Grade CDS Index 108.51 bps +3.10%
  • European Financial Sector CDS Index 116.69 bps +8.14%
  • Western Europe Sovereign Debt CDS Index 134.50 bps +7.0%
  • Emerging Market CDS Index 218.04 bps +3.31%
  • 2-Year Swap Spread 17.0 -2 bps
  • TED Spread 24.0 -2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .14% unch.
  • Yield Curve 218.0 -6 bps
  • China Import Iron Ore Spot $147.60/Metric Tonne +1.72%
  • Citi US Economic Surprise Index -55.0 -22.0 points
  • 10-Year TIPS Spread 1.75% -6 bps
Overseas Futures:
  • Nikkei Futures: Indicating -140 open in Japan
  • DAX Futures: Indicating +5 open in Germany
  • Lower: On losses in my Medical, Biotech and Technology long positions
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 is trading near session lows as it breaks convincingly back below its 200-day moving average. On the positive side, Tobacco, Food, Education and Telecom stocks are holding up relatively well, falling less than -1.5%. The ongoing trend lower in the 2-Yr Swap, Libor-OIS and TED spreads is a positive. On the negative side, Airline, Road & Rail, Construction, Bank, Networking, Steel, Oil Tanker, Alt Energy, Coal and Defense shares are especially weak, falling 4.0%+. Cyclical and Small-cap shares are underperforming again. (XLF) has been very heavy throughout the day. European bank stocks are under significant pressure again. The Euro Financial Sector CDS Index has risen substantially in the last two days and the Western European Sovereign CDS Index is now following suit. The Portugal sovereign cds is jumping +7.4% to 265.70 bps, the UK sovereign cds is rising +9.5% to 65.84 bps and the Greece sovereign cds is rising +4.9% to 829.0 bps. The euro currency has likely put in another meaningful top. The latest US scrap steel index quote is showing a decline of -11.13%, which puts it below its 200-day moving average for the first time since June 2009. The 10-year yield is falling another -7 bps to 2.69%, which is also a big negative. The market's reaction to Cisco's earnings report after the close today is key given recent tech sector concerns. I am not ruling out the possibility that another meaningful move lower in stocks has begun. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, technical selling, profit-taking, rising sovereign debt angst, increasing financial sector pessimism and China worries.


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