Monday, July 11, 2011

Stocks Falling into Final Hour on Soaring Eurozone Debt Angst, Emerging Markets Inflation Fears, US Debt Ceiling Concerns, Global Growth Worries

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 18.91 +18.56%
  • ISE Sentiment Index 77.0 -11.49%
  • Total Put/Call 1.17 +14.71%
  • NYSE Arms 3.66 +82.57%
Credit Investor Angst:
  • North American Investment Grade CDS Index 96.25 +3.48%
  • European Financial Sector CDS Index 144.67 +9.64%
  • Western Europe Sovereign Debt CDS Index 279.17 +10.78%
  • Emerging Market CDS Index 219.51 +5.05%
  • 2-Year Swap Spread 28.0 +3 bps
  • TED Spread 23.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .01% -1 bp
  • Yield Curve 255.0 -7 bps
  • China Import Iron Ore Spot $171.30/Metric Tonne +.06%
  • Citi US Economic Surprise Index -87.80 +3.6 points
  • 10-Year TIPS Spread 2.29% -1 bp
Overseas Futures:
  • Nikkei Futures: Indicating -185 open in Japan
  • DAX Futures: Indicating -3 open in Germany
  • Slightly Lower: On losses in my Retail, Biotech, Medical and Technology sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows on soaring eurozone debt angst, emerging markets inflation fears, US debt ceiling worries, financial sector pessimism and global growth concerns. On the positive side, Semi and Restaurant shares are holding up relatively well, falling less than -1.0%. Oil is falling -1.3% and the UBS-Bloomberg Ag Spot Index is down -.84%. On the negative side, Education, Gaming, Homebuilding, Construction, HMO, Hospital, I-Banking, Bank, Networking, Disk Drive, Steel, Oil Service, Energy, Oil Tanker, Alt Energy and Coal shares are especially weak, falling more than -3.0%. Gold is up +.67% and copper is falling -1.09%. Cyclicals and small-caps are underperforming. (XLF) has traded poorly throughout the day. The US price for a gallon of gas is +.03/gallon today to $3.63/gallon. It is up .49/gallon in less than 5 months. The Spain sovereign cds is up +4.78% to 329.17 bps, the Ireland sovereign cds is gaining +11.72% to 1,005.41 bps, the Russia sovereign cds is jumping +7.8% to 155.50 bps, the Italy sovereign cds is soaring +22.61% to 296.0 bps, the UK sovereign cds is rising +9.96% to 74.90 bps, the Belgium sovereign cds is up +14.18% to 197.0 bps, the Greece sovereign cds is surging +7.3% to 2,336.99 bps and the Portugal sovereign cds is up +10.91% to 1,134.48 bps. Moreover, the European Investment Grade CDS Index is up +8.9% to 95.53 bps. The Eurozone Financial Sector CDS Index is breaking out. The Western Europe Sovereign CDS Index is hitting another record high. The Spain and Belgium sovereign cds are breaking out. The Italy, Portugal, Greece and Ireland sovereign cds are hitting new record highs. Italy's cds has risen +60.5% in 5 days. European contagion fears continue to intensify and are beginning to spin out of control again. Brazil's Bovespa is the worst trading index in the world right now, falling another -2.25% today, and is now down -13.2% ytd. Moreover, Italian(-3.96%), French(-2.71%) and Spanish(-2.69%) stocks took another drubbing today and finished at session lows. Italy's FTSE MIB Index is now down -9.3% ytd. Investor complacency regarding the deteriorating situation in Europe was high last week and this is catching up with the major averages today as the indices remain somewhat overbought. As well, I continue to believe the slowing growth and rising inflation in emerging markets is a larger problem than perceived. China Pork Spot Prices rose another +3.36% in the latest weekly report. They are now up +70.63% over the last year. The situation in Europe needs to stabilize, commodity prices need to fall further, the US debt ceiling issue needs resolution and forward earnings guidance must be ok for stocks to build meaningfully on their recent rally. I expect US stocks to trade mixed-to-lower into the close from current levels on soaring eurozone debt angst, emerging markets inflation fears, US debt ceiling concerns, profit-taking, more shorting and global growth worries.

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