Tuesday, August 02, 2011

Stocks Falling into Final Hour on Soaring Eurozone Debt Angst, US Tax Hike Worries, Global Growth Concerns, Technical Selling


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Sector Declining
  • Volume: About Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 23.83 +.72%
  • ISE Sentiment Index 98.0 +13.95%
  • Total Put/Call 1.18 +2.61%
  • NYSE Arms 3.01 +53.32%
Credit Investor Angst:
  • North American Investment Grade CDS Index 96.91 +1.44%
  • European Financial Sector CDS Index 172.68 +11.50%
  • Western Europe Sovereign Debt CDS Index 290.17 +1.16%
  • Emerging Market CDS Index 214.12 +1.26%
  • 2-Year Swap Spread 25.0 +3 bps
  • TED Spread 23.0 +4 bps
Economic Gauges:
  • 3-Month T-Bill Yield .04% -3 bps
  • Yield Curve 231.0 -6 bps
  • China Import Iron Ore Spot $177.40/Metric Tonne +.74%
  • Citi US Economic Surprise Index -90.40 +2.2 points
  • 10-Year TIPS Spread 2.35% -7 bps
Overseas Futures:
  • Nikkei Futures: Indicating -91 open in Japan
  • DAX Futures: Indicating -12 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Technology, Medical, Retail and Biotech 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 breaks convincingly below its 200-day moving average on soaring eurozone debt angst, rising food prices, US tax hike concerns, more poor US economic data, emerging market inflation fears, financial sector pessimism and global growth worries. On the positive side, Computer Service and Telecom shares are holding up relatively well, falling less than -.75%. Oil is falling -1.7%. Weekly retail sales rose +4.3% versus a +4.2% gain the prior week. On the negative side, Airline, Road & Rail, Gaming, REIT, Homebuilding, Bank, Disk Drive, Paper, Oil Tanker, Coal and Alternative Energy shares are under significant pressure, falling more than -2.75%. (XLF)/(IYR) have underperformed throughout the day. Cyclicals are also relatively weak. The Transports are breaking convincingly below their 200-day moving average on volume. The Networking Sub-Index is down -26.3% from its April 27th high. The 10-year yield is again falling too much, down -13 bps to 2.61%. My intermediate-term technical indicators are now giving sell signals on the yield curve. The UBS-Bloomberg Ag Spot Index is rising +1.47%, Lumber is dropping another -4.2%, gold is surging +2.4% and Copper is down -.43%. Lumber is now back to its June 16th 52-week low. Rice is rising another +.8% today and is still near a multi-year high, soaring about +27.0% in less than 1 month. The US price for a gallon of gas is unch. today at $3.71/gallon. It is up .57/gallon in less than 5 months. The Italy sovereign cds is jumping +9.2% to 359.17 bps, the France sovereign cds is rising +6.77% to 134.0 bps, the Spain sovereign cds is surging +4.80% to 404.62 bps, the Germany sovereign cds is rising +2.26% to 65.46 bps, the UK sovereign cds is rising +3.44% to 76.53 bps, the Belgium sovereign cds is rising +8.77% to 225.50 bps and the Ireland sovereign cds is rising +3.06% to 841.47 bps. The Italy sovereign cds has soared +144 bps in 8 days. The Spain, Italy and France sovereign cds are making new record highs today. The German sovereign cds is breaking out to a multi-year high. The Eurozone Financial Sector CDS Index is very close to record highs, as well. Asian indices were weak overnight despite the US debt deal, with India's Sensex falling another -1.1%, which leaves it down -11.7% ytd. Germany's DAX has broken down badly over the last 2 days and is now down -1.7% ytd. French(-1.8%), Italian(-2.53%) and Spanish(-2.18%) stocks continue to trade very poorly. Italian stocks are now down -14.4% ytd and are down -23.3% from their Feb. 17th 52-week high. The action in European equities and cds remain a huge concern. The situation again appears to be spinning out of control. Most gauges of investor angst are registering too much complacency given the magnitude of current headwinds. While the US debt ceiling situation has been resolved, talk of super committee imposed significant tax hikes in the future still leaves significant uncertainty for businesses and thus hiring. It is somewhat amazing that we appear to be following the European spending cut/tax hike model that has so miserably failed and left their budgets in even worse shape as economic growth falters. I am hearing QE3 talk again, notwithstanding how badly QE2 failed in its stated goals. With oil still near $100/bbl and the UBS-Bloomberg Ag Spot Index trading as if another record high is in the offing, the odds of QE3 are likely pretty low and would prove another huge mistake if implemented. I expect US stocks to trade mixed-to-lower into the close from current levels on soaring eurozone debt angst, US tax hike worries, global growth concerns, technical selling, emerging markets inflation fears, rising food prices and financial sector pessimism.

4 comments:

Anonymous said...

"It is somewhat amazing that we appear to be following the European spending cut/tax hike model that has so miserably failed and left their budgets in even worse shape as economic growth falters. "
What is the ultimate magic formula then? Powering up the printing machines and inflate the value of the USD?

Gary said...

Weak dollar policies are one of our biggest mistakes over the last decade. The spending cuts aren't the problem...it's the probable tax hikes combined with an avalanche of new unconstructive regulations during a very weak economic period that the market fears. Moreover, the healhcare "reform" that we plan to implement will blow another gigantic hole in the country's balance sheet and the market knows what that means. The "correct formula" would be spending cuts combined with economic growth stimulators.

Anonymous said...

"economic growth stimulators"
What do you mean exactly Gary?

Anonymous said...

http://pragcap.com/what-in-the-world-is-the-bond-market-saying