Tuesday, March 15, 2011

Stocks Lower into Final Hour on Japan Nuclear Fears, Mideast Unrest, More Shorting

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 23.78 +12.54%
  • ISE Sentiment Index 88.0 -29.60%
  • Total Put/Call 1.10 +15.79%
  • NYSE Arms 1.08 -.18%
Credit Investor Angst:
  • North American Investment Grade CDS Index 89.17 +3.0%
  • European Financial Sector CDS Index 121.58 -.37%
  • Western Europe Sovereign Debt CDS Index 175.67 bps -2.14%
  • Emerging Market CDS Index 219.86 +2.81%
  • 2-Year Swap Spread 19.0 -1 bp
  • TED Spread 22.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .09% +2 bps
  • Yield Curve 271.0 -4 bps
  • China Import Iron Ore Spot $164.70/Metric Tonne -.96%
  • Citi US Economic Surprise Index +62.60 -.9 point
  • 10-Year TIPS Spread 2.42% -2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +350 open in Japan
  • DAX Futures: Indicating -7 open in Germany
  • Slighltly Lower: On losses in my Tech and Medical longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges, some of my (EEM) short and added to my (GOOG) long
  • Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 cut losses into the afternoon, despite the Japan disaster, growing Mideast unrest, recent technical damage and emerging market inflation fears. On the positive side, Alt Energy, Homebuilding, REIT, Airline, Road & Rail, Restaurant, HMO, Hospital and Coal shares are holding up very well. Small-caps and cyclicals are outperforming. (IYR)/(XHB) have been relatively firm throughout the day. The UBS-Bloomberg Ag Spot Index is down -5.56%, oil is falling -3.9%, gold is down -2.0% and copper is just -.3% lower. The 10-year yield is declining -3 bps to 3.32%. The Spain sovereign cds is falling -1.02% to 238.19 bps. Another decline in key european cds indices is a large positive. On the negative side, Education, Insurance, Drug, I-Banking, Software and Utility shares are under meaningful pressure, falling more than 1.0%. Tech, in general, is underperforming again. China Iron Ore Spot has declined -14.2% in less than 1 month. The Russia sovereign cds is jumping +4.3% to 137.62 bps and the Japan sovereign cds is soaring +24.97% to 118.83 bps. Moreover, the Saudi sovereign cds is rising +6.12% to 134.39 bps. The Asia Pacific Sovereign CDS Index is rising +5.4% to 125.31 bps. The avg. US price for a gallon of gas is unch. today at $3.56/gallon. It is up .44/gallon in 28 days. For the third day in a row, the major US averages are displaying exceptional resilience in the face of several potentially damaging catalysts, which is a major positive. Given the news out of the Mideast today, rebound in the euro and more positive FOMC commentary, oil trades very poorly. As well, the UBS-Bloomberg Ag Spot Index is breaking down convincingly. Both look poised for further weakness, which could boost the broad US stock averages as global inflation pressures subside. If the Japan nuclear situation stabilizes further or improves meaningfully stocks likely made tradable lows this morning. A significant deterioration in the situation, which the odds don't favor, would likely mean at the very least a test of this morning's lows. One of my longs, (GOOG), is technically oversold and is fundamentally cheap. GOOG is likely a beneficiary of the huge spike in viral videos/news related to the Mideast/Japan. I still see substantial upside in the shares from current levels over the longer-term. I expect US stocks to trade modestly higher into the close from current levels on fund inflows, declining energy/food prices, short-covering, bargain-hunting, buyout speculation, technical buying, a bounce in Nikkei futures and a rebound in the euro.

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