Tuesday, December 07, 2010

Stocks Slightly Higher into Final Hour on Tax Policies, Less Economic Fear, Short-Covering

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 17.90 -.55%
  • ISE Sentiment Index 182.0 +11.66%
  • Total Put/Call .73 -1.35%
  • NYSE Arms .53 -52.06%
Credit Investor Angst:
  • North American Investment Grade CDS Index 88.01 bps -4.34%
  • European Financial Sector CDS Index 127.79 bps +1.95%
  • Western Europe Sovereign Debt CDS Index 180.50 bps -.55%
  • Emerging Market CDS Index 210.73 bps -.02%
  • 2-Year Swap Spread 21.0 -2 bps
  • TED Spread 17.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% +1 bp
  • Yield Curve 262.0 +10 bps
  • China Import Iron Ore Spot $164.70/Metric Tonne -1.44%
  • Citi US Economic Surprise Index -14.10 -2.0 points
  • 10-Year TIPS Spread 2.25% +6 bps
Overseas Futures:
  • Nikkei Futures: Indicating +64 open in Japan
  • DAX Futures: Indicating +8 open in Germany
  • Higher: On gains in my Retail, Ag, Biotech and Technology long positions
  • Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite soaring long-term rates, recent gains, China inflation worries and insider trading probe rumors. On the positive side, Restaurant, Hospital, Disk Drive, Software and Steel shares are especially strong, rising more than 1.0%. Cyclical and Small-Cap shares are outperforming again. Copper is rising +.76% and Lumber is gaining +.95% despite more euro weakness. Weekly retail sales rose +3.8% this week versus a +3.2% gain the prior week. This is the best showing since the first week of April. The Italy sovereign cds is falling -5.95% to 202.34 bps. Gold is falling -1.45%. On the negative side, Airline, Construction, Gold, Oil Service and Coal shares are under pressure, falling more than 1.0%. The Portugal sovereign cds is gaining +1.15% to 440.26 bps and the Belgium sovereign cds is climbing +4.0% to 195.30 bps. The US Muni CDS Index is rising +3.64% to 191.21 bps, as well. The 10-year yield is soaring +21 bps to 3.13%. Market leading stocks have mostly underperformed throughout the day. Some key investor sentiment gauges are getting a bit too bullish. The Fed's highly flawed QE2 program and more short-term US economic optimism, as a result of the tax policies, are fueling a huge surge in long-term interest rates, which could potentially derail the economy next year as oil and mortgage rates rise too much. I expect US stocks to trade mixed-to-lower into the close from current levels on soaring long-term rates, profit-taking, China inflation fears, insider trading probe rumors and technical selling.

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