Tuesday, January 04, 2011

Stocks Slightly Lower into Final Hour on Profit-Taking, More Shorting, Real Estate Sector Pessimism

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.63 +.11%
  • ISE Sentiment Index 94.0 -40.13%
  • Total Put/Call .65 +1.56%
  • NYSE Arms 1.16 +115.3%
Credit Investor Angst:
  • North American Investment Grade CDS Index 82.66 -.14%
  • European Financial Sector CDS Index 148.54 bps -2.28%
  • Western Europe Sovereign Debt CDS Index 201.75 bps -2.30%
  • Emerging Market CDS Index 194.22 -.51%
  • 2-Year Swap Spread 20.0 +1 bp
  • TED Spread 18.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .13% +1 bp
  • Yield Curve 273.0 unch.
  • China Import Iron Ore Spot $171.0/Metric Tonne +.56%
  • Citi US Economic Surprise Index +14.90 +.3 point
  • 10-Year TIPS Spread 2.34% +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating +12 open in Japan
  • DAX Futures: Indicating +12 open in Germany
  • Slightly Lower: On losses in my Medical and Retail long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 trades slightly lower despite more positive economic data, equity strength overseas and less euro sovereign debt angst. On the positive side, Hospital, Drug, Wireless, Telecom, Networking and Utility shares shares are especially strong, rising more than .5%. The 10-year yield is stable despite today's positive economic data. The euro currency continues to trade poorly and gold is falling -2.4%. Oil is near session lows, down -2.6%, despite strong commodity fund inflows and positive global economic data. The China sovereign cds is declining -4.85% to 65.58 bps, the Russia sovereign cds is falling -6.38% to 137.0 bps and the US sovereign cds is declining -3.71% to 39.96 bps. On the negative side, Education, Restaurant, REIT, Construction and Oil Service shares are under meaningful pressure, falling more than 2.0%. Small-caps are underperforming. (IYR) has traded poorly throughout the day. The Euro Financial Sector CDS Index remains near its highest level since mid-June and the Western Europe Sovereign CDS Index is still near a record high, despite today's declines. Lumber is falling -1.94% and copper is down -1.54%. Many small-cap stocks that had huge runs last year are under significant pressure today, along with commodities. Many underperforming hedge funds likely increased exposure in these areas during 4Q in an effort to catch the S&P 500. These funds are likely unwinding some of these bets now. Last year's sharp move higher in most commodities in the face of a flat US Dollar Index was somewhat unusual. I suspect that unless the euro currency regains its footing in a meaningful way that performance by commodities is unlikely to be repeated this year. The broad market continues to trade well as it slowly grinds higher and the bears remain unable to gain any traction on potential negative catalysts. I expect US stocks to trade mixed-to-higher into the close from current levels on equity fund inflows, technical buying, stable long-term rates, less financial sector pessimism, more economic optimism and buyout speculation.

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