Thursday, January 13, 2011

Stocks Slightly Lower into Final Hour on US Debt Concerns, Profit-Taking, More Shorting, Emerging Markets Inflation Worries

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 16.53 +1.79%
  • ISE Sentiment Index 147.0 -8.13%
  • Total Put/Call .73 -8.75%
  • NYSE Arms 1.34 +163.16%
Credit Investor Angst:
  • North American Investment Grade CDS Index 84.50 +1.19%
  • European Financial Sector CDS Index 163.16 bps +1.46%
  • Western Europe Sovereign Debt CDS Index 199.08 bps -5.54%
  • Emerging Market CDS Index 201.38 +.20%
  • 2-Year Swap Spread 23.0 unch.
  • TED Spread 16.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .14% unch.
  • Yield Curve 273.0 -3 bps
  • China Import Iron Ore Spot $176.50/Metric Tonne +.63%
  • Citi US Economic Surprise Index +40.20 +3.8 points
  • 10-Year TIPS Spread 2.35% -4 bps
Overseas Futures:
  • Nikkei Futures: Indicating +11 open in Japan
  • DAX Futures: Indicating -20 open in Germany
  • Slightly Higher: On gains in my Medical, Ag and Retail long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower, despite declining eurozone debt fears and gains in overseas equities. On the positive side, Road & Rail, Education, Hospital, Ag, HMO and I-Banking shares are especially strong, rising more than .5%. The Transports are higher on the day and (IYR) is also outperforming. Lumber is rising +1.02%. The 10-year yield is falling -6 bps to 3.3%. The Citi US Economic Surprise Index is now at the highest level since April 12th of last year. The Italy sovereign cds is falling -6.56% to 213.06 bps, the Spain sovereign cds is falling -7.75% to 306.65 bps, the Portugal sovereign cds is declining -2.9% to 498.21 bps and the Belgium sovereign cds is falling -9.54% to 208.55 bps. Moreover, the European Investment Grade CDS Index is dropping -2.46% to 87.46 bps, which is also a huge positive. The AAII % Bulls fell to 52.34 this week, while the % Bears rose to 23.44, which is a mild positive. On the negative side, Gaming, Drug, Construction, Bank, Computer, Steel and Alt Energy shares are under pressure, falling more than .75%. (XLF) has underperformed throughout the day. The UBS-Bloomberg Ag Spot Index is hitting another record high today, rising +.52%. The China sovereign cds is rising +3.63% to 77.27 bps and the US sovereign cds is climbing +4.81% to 43.44 bps. The Euro Financial Sector CDS Index is still trending higher. The Western Europe Sovereign CDS Index is still just modestly below its record high set on Monday. Today's comments from ratings firms on US sovereign debt, as munis suffer another sell-off, are likely weighing on equities. The broad market continues to trade well overall. Given the decline in the eurozone cds and stabilization in the euro currency, today's pullback looks like healthy profit-taking to me. I expect US stocks to trade modestly higher into the close from current levels on declining eurozone debt angst, short-covering and a bounce in the euro.

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