Thursday, August 04, 2011

Stocks Plunging into Final Hour on Soaring Eurozone Debt Angst, Global Growth Worries, Emerging Markets Inflation Fears, US Tax Hike Worries


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Heavy
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 28.17 +20.70%
  • ISE Sentiment Index 70.0 -14.63%
  • Total Put/Call 1.26 -5.26%
  • NYSE Arms 4.23 +362.78%
Credit Investor Angst:
  • North American Investment Grade CDS Index 100.41 +1.41%
  • European Financial Sector CDS Index 185.18 +12.14%
  • Western Europe Sovereign Debt CDS Index 294.83 +3.57%
  • Emerging Market CDS Index 229.84 +5.11%
  • 2-Year Swap Spread 25.0 unch.
  • TED Spread 26.0 +3 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% -4 bps
  • Yield Curve 219.0 -12 bps
  • China Import Iron Ore Spot $177.90/Metric Tonne +.11%
  • Citi US Economic Surprise Index -88.0 -2.4 points
  • 10-Year TIPS Spread 2.21% -14 bps
Overseas Futures:
  • Nikkei Futures: Indicating -250 open in Japan
  • DAX Futures: Indicating -45 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Technology, Medical, Biotech and Retail sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, stopped out of some longs
  • Market Exposure: Moved to 25% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 takes out technical support on volume on soaring eurozone debt angst, US tax hike concerns, financial sector pessimism, emerging market inflation fears and global growth worries. On the positive side, Telecom and Restaurant shares are holding up relatively well, falling less than -2.0%. Oil is plunging -5.5% and the UBS-Bloomberg Ag Spot Index is falling -1.47%. The AAII % Bulls fell to 27.2% this week, while the % Bears jumped to 49.9, which is a big positive. On the negative side, Coal, Alt Energy, Energy, Oil Service, Steel, Paper, Construction, Hombuilding, Biotech, Disk Drive and Agriculture shares are under severe pressure, falling more than -5.0%. Gold is unch. and Copper is down -1.96%. Rice is hovering near a multi-year high, soaring about +26.0% in less than 1 month. The US price for a gallon of gas is unch. today at $3.70/gallon. It is up .56/gallon in less than 5 months. The Italy sovereign cds is rising +5.96% to 387.82 bps, the Brazil sovereign cds is rising +3.29% to 118.78 bps, the Russia sovereign cds is rising +6.9% to 158.17 bps, the China sovereign cds is surging +7.28% to 93.39 bps, the France sovereign cds is rising +2.3% to 143.89 bps, the Spain sovereign cds is surging +2.41% to 429.65 bps, the Germany sovereign cds is rising +5.48% to 72.25 bps and the Belgium sovereign cds is rising +6.47% to 245.07 bps. The Italy sovereign cds has soared +173 bps in 10 days. The Spain, Italy and France sovereign cds are making new record highs again today. The German sovereign cds is hitting another multi-year high and is only 20.0 bps from its Feb. 09 high of 93.0 bps. The Eurozone Financial Sector CDS Index is now only 24.0 bps from its March 09 record high. India's Sensex fell another -1.4% last night despite the rally in US stocks, which leaves it down -13.7% ytd. Brazil's Bovespa continues to be one of the word's worst-performers, falling another -4.6% today, which leaves it down -22.7% ytd and -26.9% from its Nov. 4th high. Germany's DAX has broken down badly over the last 4 days and is now down -7.2% ytd. French(-3.9%), Italian(-5.2%) and Spanish(-3.9%) stocks are trading horribly again today. Italian stocks are now down -20.05% ytd and are down -28.4% from their Feb. 17th 52-week high. Gauges of investor angst are spiking again today, which is a positive. However, the markets are telegraphing a global recession. As I warned a few weeks ago, investors were too pre-occupied with the US debt ceiling debate and losing sight of how badly Europe and some key emerging markets were deteriorating. Europe appears to be in complete disarray and Brazil trades like its economy is poised for a hard landing on runaway inflation. As well, China and India continue to be a large concern. While Russia has held up much better than most other emerging markets(+3.9% ytd), it likely has the most downside risk from current levels if a global recession truly is in the offing. I suspect another dynamic that is now back in play is forced selling by some very well know hedge funds. Considering how badly many funds were already underperforming and that net long exposure was relatively high before this sell-off gained traction, another round of closures could be in store. While stocks are very oversold near-term and should start bouncing by early next week, more weakness is likely over the intermediate-term. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting and falling energy/food prices.

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