Wednesday, August 31, 2011

Stocks Higher into Final Hour on Less Eurozone Debt Angst, Short-Covering, Better Economic Data, Less Financial Sector Pessimism


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 31.79 -3.31%
  • ISE Sentiment Index 76.0 +40.7%
  • Total Put/Call 1.24 +10.71%
  • NYSE Arms .80 -32.57%
Credit Investor Angst:
  • North American Investment Grade CDS Index 114.76 -5.31%
  • European Financial Sector CDS Index 220.19 -2.34%
  • Western Europe Sovereign Debt CDS Index 304.17 -.03%
  • Emerging Market CDS Index 263.50 -5.88%
  • 2-Year Swap Spread 29.0 -1 bp
  • TED Spread 32.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .01% unch.
  • Yield Curve 199.0 unch.
  • China Import Iron Ore Spot $179.90/Metric Tonne +.56%
  • Citi US Economic Surprise Index -53.1 +6.5 points
  • 10-Year TIPS Spread 2.03% unch.
Overseas Futures:
  • Nikkei Futures: Indicating +85 open in Japan
  • DAX Futures: Indicating -5 open in Germany
Portfolio:
  • Higher: On gains in my Retail/Medical sector longs and Index Hedges
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 reverses morning gains despite less Eurozone debt angst, better economic data, less financial sector pessimism and month-end window dressing. On the positive side, I-Banking and Drug shares are especially strong, rising over +.50% on the day. (XLF) has outperformed throughout the day. The 10-Year Yield is rising +5 bps to 2.22%. Copper is gaining +1.44%, Gold is falling -.74% and Lumber is gaining +2.51%. The France sovereign cds is falling -3.68% to 154.17 bps, the Portugal sovereign cds is declining -4.19% to 918.01 bps, the UK sovereign cds is falling -6.46% to 73.97 bps, the Ireland sovereign cds is falling -5.17% to 768.55 bps and the Germany sovereign cds is falling -7.0% to 74.67 bps. Moreover, the Eurozone Investment Grade CDS Index is declining -6.44% to 137.53 bps, which is also a big positive. On the negative side, Telecom, Gaming, Education, Networking, Disk Drive, Semi, Coal, Atl Energy and Oil Tanker shares are under pressure, falling more than -1.0%. Small-caps are relatively weak. Tech shares have also undperformed throughout the day. Oil is rising +.26%. Rice is hitting a new multi-year high today, rising +34.0% in about 8 weeks. The average US price for a gallon of gas is +.01/gallon today at $3.62/gallon. It is up .48/gallon in about 7 months. The Greece sovereign cds is gaining +.93% to 2,247.42 bps and the US sovereign cds is up +3.25% to 50.15 bps. The Eurozone Financial Sector CDS Index is still near it recent all-time high despite today's pullback. The Citi Eurozone Economic Surprise Index has plunged -109.4 points in about 3 weeks to -103.30. The UBS-Bloomberg Ag Spot Index is at another record high, which is also a large negative. The Shanghai Composite did not participate in the Asian equity rally again overnight and is down -8.60% ytd. Volume was light again on today's stock advance. Some of this year's worst-performing groups led today's advance again. As well, the euro currency continues to sit out the recent stock rally despite equity trader optimism over developments in the region. While today's decline in eurozone cds is a big positive, I would not yet classify it as meaningful given the magnitude of the rises over the last few months. Overall food prices, even before any additional QE, are now above levels that sparked riots in some parts of the world and boosted inflation gauges globally earlier in the year. I want to see how much of the recent rally was related to month-end short-covering before getting more aggressive on the long side. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, less financial sector pessimism, less eurozone debt angst, better economic data, month-end window dressing and technical buying.

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