Wednesday, July 27, 2011

Stocks Falling Into Final Hour on Rising Eurozone Debt Angst, US Debt Ceiling Concerns, Global Growth Worries, Tech Sector Weakness

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Above Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 22.54 +11.52%
  • ISE Sentiment Index 106.0 -19.08%
  • Total Put/Call 1.02 +29.11%
  • NYSE Arms 1.24 +50.13%
Credit Investor Angst:
  • North American Investment Grade CDS Index 95.09 +1.14%
  • European Financial Sector CDS Index 150.53 +6.80%
  • Western Europe Sovereign Debt CDS Index 283.50 -.70%
  • Emerging Market CDS Index 215.65 +.92%
  • 2-Year Swap Spread 21.0 -2 bps
  • TED Spread 18.0 -2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .07% +2 bps
  • Yield Curve 254.0 -2 bps
  • China Import Iron Ore Spot $175.30/Metric Tonne unch.
  • Citi US Economic Surprise Index -86.20 -2.6 points
  • 10-Year TIPS Spread 2.44% +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating -92 open in Japan
  • DAX Futures: Indicating -24 open in Germany
  • Slightly Lower: On losses in my Technology and Biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQQ) 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 is breaking below its 50-day moving average on decent volume on rising eurozone debt angst, some earnings disappointments, US debt ceiling concerns, emerging markets inflation fears, more negative US economic data and global growth worries. On the positive side, Utility, Telecom, Gaming and Tobacco shares are holding up relatively well. Oil is falling -2.1% and gold is down -.3%. The Spain sovereign cds is falling -7.39% to 280.38 bps and the Ireland sovereign cds is falling -4.42% to 837.24 bps. On the negative side, Airline, Homebuilding, Construction, HMO, Hospital, Biotech, I-Banking, Networking, Semi, Software, Alt Energy, Coal and Defense shares are under significant pressure, falling more than -3.0%. Cyclicals and small-caps are underperforming again. Tech shares have been very heavy throughout the day as the MS Tech Index rolls over again after a failure at its 200-day moving average. The Networking Sub-Index is plunging -7.2% today and is down -20.4% from its April 27th high. The UBS-Bloomberg Ag Spot Index is rising +.21%, copper is down -.98% and lumber is falling -.90%. Rice is hovering near a multi-year high, and has soared about +30.0% in less than 3 weeks. The fact that food prices are rising today with severe equity weakness and a stronger US dollar is a large negative. The US price for a gallon of gas is +.01/gallon today to $3.70/gallon. It is up .56/gallon in less than 5 months. The Italy sovereign cds is jumping +5.1% to 285.63 bps, the Greece sovereign cds is gaining +2.4% to 1,698.35 bps, the Belgium sovereign cds is rising +4.2% to 185.0 bps and the US sovereign cds is gaining +8.0% to 62.47 bps. The Italy sovereign cds has soared +70 bps in 4 days. India's Sensex fell another -.46% last night and is now down -10.1% ytd. As well, Brazil's Bovespa continues to be one of the world's worst performers, falling another -1.6% today into bear market territory, and is down -15.74% ytd. Spanish and Italian equities, down -1.9% and -2.8% respectively today, have given back most of their post-Greece debt solution bounce. The tone of the market is very poor today as volume picks up into the breach of key technical levels. Some US politicians attempts to spook the equity and bond markets are having some success today, however I suspect that a larger portion of today's losses are the result of more poor US economic data, ongoing European debt concerns, lowered forward earnings guidance and emerging market growth/inflation worries than most investors perceive. I continue to believe US debt ceiling political posturing will likely continue through at least week's end. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, global growth worries, US debt ceiling concerns, earnings worries, rising food prices and emerging markets inflation fears.

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