Tuesday, January 25, 2011

Stocks Slightly Lower into Final Hour on Profit-Taking, Emerging Market Inflation Fears, Profit Margin Worries

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 18.53 +4.99%
  • ISE Sentiment Index 120.0 +15.38%
  • Total Put/Call .98 +27.27%
  • NYSE Arms 1.77 +45.18%
Credit Investor Angst:
  • North American Investment Grade CDS Index 83.18 +1.69%
  • European Financial Sector CDS Index 135.50 bps +5.62%
  • Western Europe Sovereign Debt CDS Index 177.83 bps +1.52%
  • Emerging Market CDS Index 202.85 +2.36%
  • 2-Year Swap Spread 22.0 unch.
  • TED Spread 16.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 274.0 -7 bps
  • China Import Iron Ore Spot $185.40/Metric Tonne +.22%
  • Citi US Economic Surprise Index +42.20 +6.5 points
  • 10-Year TIPS Spread 2.23% +5 bps
Overseas Futures:
  • Nikkei Futures: Indicating -64 open in Japan
  • DAX Futures: Indicating +17 open in Germany
  • Higher: On gains in my Retail, Tech, Biotech and Medical long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades near session highs, despite recent equity gains, rising eurozone debt angst, worries over emerging markets inflation and financial sector weakness. On the positive side, Retail, REIT, HMO, Hospital, Medical, Telecom, Computer Services and Defense shares are especially strong, rising more than .5% today. (IYR) has traded well throughout the day. A number of key tech stocks are also outperforming. The 10-year yield is falling -8 bps to 3.32%. Moreover, the European Investment Grade CDS Index is dropping another -1.15% to 76.99 bps, which is also a large positive. The Citi US Economic Surprise Index is now at the highest level since April 12th of last year. US scrap steel prices are up another +5.7% over the last 5 days. Oil continues to trade very poorly, given recent positive economic data and euro strength. On the negative side, Alt Energy, Disk Drive, Networking, I-Banking, Construction, Gaming and Education shares are under pressure, falling more than 1.0%. (XLF) has underperformed again throughout the day. Copper is falling -2.7% and Lumber is down -2.6%. The Spain sovereign cds is rising +4.18% to 265.94 bps, the Italy sovereign cds is gaining +4.4% to 186.44 bps and the Portugal sovereign cds is rising +3.35% to 446.59 bps. I suspect stocks will build on this afternoon's rally tomorrow morning. The Fed announcement is unlikely to bring any meaningful surprises tomorrow afternoon. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more economic optimism, less real estate sector pessimism, falling long-term rates and technical buying.

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