Friday, January 07, 2011

Stocks Slightly Lower into Final Hour on Disappointing Jobs Report, Financial Sector Pessimism, Rising Euro Debt Angst, Profit-Taking


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.40 unch.
  • ISE Sentiment Index 88.0 -43.59%
  • Total Put/Call .93 +25.68%
  • NYSE Arms 1.34 +.13%
Credit Investor Angst:
  • North American Investment Grade CDS Index 89.19 +4.56%
  • European Financial Sector CDS Index 182.48 bps +6.52%
  • Western Europe Sovereign Debt CDS Index 209.83 bps +2.78%
  • Emerging Market CDS Index 205.51 +1.91%
  • 2-Year Swap Spread 24.0 -1 bp
  • TED Spread 17.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% -1 bp
  • Yield Curve 273.0 -1 bp
  • China Import Iron Ore Spot $172.60/Metric Tonne +.76%
  • Citi US Economic Surprise Index +35.10 +16.2 points
  • 10-Year TIPS Spread 2.35% -5 bps
Overseas Futures:
  • Nikkei Futures: Indicating -31 open in Japan
  • DAX Futures: Indicating +20 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Medical, Biotech long positions and ETF hedges
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and then covered them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 trades slightly lower despite some equity weakness overseas, recent stock gains, a disappointing jobs report, financial sector pessimism and rising euro sovereign debt angst. On the positive side, Airline, Road&Rail, Gaming, Homebuilding and Oil Service shares are especially strong, rising more than 1.0%. The Transport Index is strongly outperforming. The 10-year yield is falling -7 bps to 3.32%. The euro currency continues to trade poorly and gold is falling another -.18%. On the negative side, Tobacco, Education, Hospital, Bank, Wireless, Telecom, Disk Drive and Steel shares are under meaningful pressure, falling more than 1.0%. Copper is down -.84% and Lumber is down -1.3%. The Greece sovereign cds is climbing +3.07% to 1,066.11 bps, the Belgium sovereign cds is soaring +7.06% to 245.61 bps, Italy sovereign cds is climbing +3.59% to 247.47 bps, the Portugal sovereign cds is gaining +2.69% to 520.42 bps, the Russia sovereign cds is rising +4.9% to 148.0 bps and the China sovereign cds is rising +5.03% to 74.17 bps. The Eurozone Investment Grade CDS Index is jumping +4.73% to 93.22 bps. The Euro Financial Sector CDS Index is soaring out of its recent trading range to the highest level since early June of last year and the Western Europe Sovereign CDS Index is making a new record high. Investor sentiment gauges are still registering too much short-term complacency, which is also a negative. The bears still show no ability to gain meaningful traction despite potential negative catalysts, which is a major positive. Next week's eurozone bond auctions will be critical. A weaker euro is a huge intermediate/long-term positive for US stocks and the economy. However, I continue to believe any disorderly decline in the currency would adversely impact global equities short-term. I expect US stocks to trade mixed-to-lower into the close from current levels on rising euro sovereign debt angst, a disappointing jobs report, increasing financial sector pessimism, more shorting and profit-taking.

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