Friday, July 15, 2011

Stocks Rising into Final Hour on Less Tech Sector Pessimism, Buyout Speculation, Short-Covering, Euro Bounce

Broad Market Tone:

  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Most Rising
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 20.63 -.82%
  • ISE Sentiment Index 62.0 -18.42%
  • Total Put/Call 1.10 +3.77%
  • NYSE Arms 1.15 -6.83%
Credit Investor Angst:
  • North American Investment Grade CDS Index 97.08 +1.13%
  • European Financial Sector CDS Index 164.64 +16.0%
  • Western Europe Sovereign Debt CDS Index 291.17 +2.70%
  • Emerging Market CDS Index 221.82 +.34%
  • 2-Year Swap Spread 28.0 +1 bp
  • TED Spread 24.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 255.0 -3 bps
  • China Import Iron Ore Spot $174.60/Metric Tonne +.29%
  • Citi US Economic Surprise Index -99.90 -3.8 points
  • 10-Year TIPS Spread 2.29% +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +9 open in Japan
  • DAX Futures: Indicating -1 open in Germany
  • Higher: On gains in my Tech sector longs and Emerging Markets shorts
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, covered some of my (EEM) short and added to my (GOOG) long
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 moves to session highs despite soaring eurozone debt angst, rising energy prices, emerging markets inflation fears, global growth worries, more negative US economic data and financial sector pessimism. On the positive side, Education, REIT, Internet, Oil Service, Energy and Coal shares are especially strong, rising more than +1.0%. Tech and Energy shares have traded well throughout the day. "Growth" stocks are substantially outperforming "value" again. Copper is rising +.75% and the UBS-Bloomberg Ag Spot Index is down -.33%. On the negative side, Defense, Telecom, I-Banking, HMO, Insurance, Homebuilding and Airlines shares are especially weak today, falling more than -.5%. (XLF) has traded poorly again throughout the day. The Transports, which had been leading the market, are now trading slightly below their 50-day moving average. Gold is up +.4% and oil is rising +1.6%. Rice is hovering near a multi-year high and has soared +30.0% in less than 2 weeks. The US price for a gallon of gas is +.01/gallon today to $3.67/gallon. It is up .53/gallon in less than 5 months. The Spain sovereign cds is up +7.05% to 346.19 bps, the Italy sovereign cds is jumping +6.26% to 303.0 bps, the France sovereign cds is surging +7.4% to 113.50, the Greece sovereign cds is rising +2.99% to 2,434.68 bps, the Belgium sovereign cds is gaining +7.46% to 201.67 bps, the Portugal sovereign cds is up +4.5% to 1,144.07 bps and the Ireland sovereign cds is up 4.56% to 1,132.15 bps. Moreover, the European Investment Grade CDS Index is rising +6.85% to 102.88 bps. The Western Europe Sovereign CDS Index is near its record high and the European Financial Sector CDS Index is near its recent high. The Ireland sovereign cds is making a new record high today, as well. The Banco Santander SA(STD) cds is jumping +13.9% to 297.58 bps, which is near its record of 298.93 bps. Shanghai copper inventories have risen +36.2% in 5 days. Brazil's Bovespa fell another -.27% today to the lowest since May 2010 and is down -14.1% ytd. Italian equities fell another -1.1%, finishing at session lows, and are down -8.54% ytd. As well Spanish shares fell -1.2%, finishing near session lows. US debt ceiling concerns are masking underlying euro currency weakness. As the debt ceiling controversy subsides the euro will likely come under renewed pressure. US stocks continue to display extraordinary resilience given the magnitude of the still developing headwinds. Moreover, true growth stocks are now experiencing multiple expansion as global growth is likely to further slow. Eurozone debt angst must subside very soon for stocks to build on today's advance next week. One of my longs, (GOOG), which I had unfortunately trimmed a couple of months ago, soared +12.9% today. I added back to this position in anticipation of further gains over the intermediate-term. Their quarter was extremely impressive and the valuation remains very reasonable. I expect US stocks to trade modestly higher into the close from current levels on buyout speculation, less tech sector pessimism, short-covering, bargain-hunting and a bounce in the euro.

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