Tuesday, March 08, 2011

Stocks Rising into Final Hour on Lower Energy Prices, More Economic Optimism, Short-Covering, Fund Inflows

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.51 -5.57%
  • ISE Sentiment Index 137.0 +41.24%
  • Total Put/Call .91 +2.25%
  • NYSE Arms .81 -36.28%
Credit Investor Angst:
  • North American Investment Grade CDS Index 83.85 -.78%
  • European Financial Sector CDS Index 117.58 -1.20%
  • Western Europe Sovereign Debt CDS Index 175.17 bps unch.
  • Emerging Market CDS Index 203.52 -2.44%
  • 2-Year Swap Spread 20.0 unch.
  • TED Spread 20.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .10% unch.
  • Yield Curve 283.0 +2bps
  • China Import Iron Ore Spot $172.80/Metric Tonne -.69%
  • Citi US Economic Surprise Index +91.20 -2.0 points
  • 10-Year TIPS Spread 2.57% +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating +65 open in Japan
  • DAX Futures: Indicating +11 open in Germany
  • Higher: On gains in my Retail, Biotech, Tech and Medical longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 moves strongly higher off its 50-day moving average, despite just a slight pullback in oil, eurozone debt angst, emerging markets inflation fears and commodity stock weakness. On the positive side, Airline, Road&Rail, REIT, Homebuilding, HMO, Hospital, Bank, Telecom, Computer Service, Computer, Software and Defense shares are especially strong, rising 2.0%+. Small-cap and Cyclical shares are strongly outperforming. (XLF) and (IYR) have also traded well throughout the day. The Transports are surging back above their 50-day moving average on volume. The Saudi sovereign cds is falling -.41% to 128.81 bps and the Israeli sovereign cds is falling -1.68% to 152.59 bps. Moreover, the UK sovereign cds is falling -2.36% to 56.0 bps. The US dollar is catching a bid and looks poised for further near-term gains. The UBS-Bloomberg Ag Spot Index is down -.35%, oil is down -.2% and copper is gaining +.34%. On the negative side, Coal, Oil Tanker, Energy, Oil Service and Ag shares are down on the day. Tech is also underperforming. The avg. US price for a gallon of gas is up another .02/gallon today to $3.53/gallon. It is now up .41/gallon in 19 days. Weekly retail sales rose +2.0% last week versus a +2.6% gain the prior week. This is the smallest weekly gain since the week of March 2, 2010, which is a negative. China Iron Ore Spot is down -10.7% in just over 2 weeks. As well, the US scrap steel benchmark has fallen -6.0% over the last week. Equity investor complacency regarding the deteriorating situation in the Mideast and the eventual negative effects of soaring commodities remains high. Speculation by funds in oil is at very extreme levels and likely caps significant near-term upside in the commodity barring any new developments in the region. Banks, Airlines and Homebuilders are leading the way today. I would like to see better quality leadership and volume on further gains. US stocks want to work higher on any stabilization in energy prices, however oil is not trading like a meaningful top is in place, as of yet. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices, more economic optimism, fund inflows, short-covering and bargain-hunting.

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