Thursday, August 18, 2011

Stocks Plunging into Final Hour on Global Growth Fears, Rising Eurozone Debt Angst, Financial/Tech Sector Weakness, Margin Selling

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 42.64 +34.90%
  • ISE Sentiment Index 75.0 -27.2%
  • Total Put/Call 1.52 +11.76%
  • NYSE Arms 2.04 +100.19%
Credit Investor Angst:
  • North American Investment Grade CDS Index 115.98 +5.8%
  • European Financial Sector CDS Index 206.17 +9.54%
  • Western Europe Sovereign Debt CDS Index 292.50 +.11%
  • Emerging Market CDS Index 276.98 +7.23%
  • 2-Year Swap Spread 27.0 +2 bps
  • TED Spread 30.0 +2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% -1 bp
  • Yield Curve 188.0 -10 bps
  • China Import Iron Ore Spot $177.10/Metric Tonne +.17%
  • Citi US Economic Surprise Index -83.90 -11.0 points
  • 10-Year TIPS Spread 1.96% -17 bps
Overseas Futures:
  • Nikkei Futures: Indicating -264 open in Japan
  • DAX Futures: Indicating -21 open in Germany
  • Lower: On losses in my Tech, Medical, Biotech and Retail sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short, then covered some of them
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 falls substantially with good volume on global growth worries, rising Eurozone debt angst, emerging markets inflation fears, more shorting, technical selling, forced margin selling, tax hike fears and tech/financial sector weakness. On the positive side, Utility, Tobacco and Telecom shares are holding up relatively well, falling less than 3.0% on the day. Oil is falling -6.62% and the UBS-Bloomberg Ag Spot Index is down -1.06%. On the negative side, Road & Rail, Homebuilding, Construction, Networking, Disk Drive, Computer, Oil Service, Alt Energy and Coal shares are under tremendous pressure, plunging more than -7.0%. Cyclicals and small-caps are relatively weak again today. The Transports have underperformed throughout the day again and tech/financial shares trade very poorly. The 10-year yield is falling -9 bps to 2.07%. Gold is rising +1.92%, Copper is falling -2.55% and Lumber is falling -3.5%. Rice is still near a multi-year high, rising +28.0% in about 7 weeks. The US price for a gallon of gas is falling +.01/gallon today to $3.59/gallon. It is up .45/gallon in about 7 months. The Germany sovereign cds is jumping +6.98% to 79.67 bps, the France sovereign cds is rising +9.06% to 150.33 bps, the Spain sovereign cds is gaining +9.48% to 362.50 bps, the Italy sovereign cds is rising +3.68% to 352.33 bps, the Russia sovereign cds is gaining +7.28% to 192.33 bps, the Brazil sovereign cds is gaining +7.6% to 146.39 bps and the UK sovereign cds is rising +7.56% to 79.83 bps. Moreover, the US Muni cds index is surging +10.77% to 177.21 bps. The FRA/OIS Spread is jumping +5 bps to 41.75 bps. Indian stocks fell -2.2% overnight and are back near their lows, down -19.7% ytd. German, French and Italian stocks plunged over -5% today and are back near their lows. Germany's DAX is now down -19.0% ytd. Gauges of investor angst are surging today, which is a positive. However, the AAII % Bulls rose to 35.56 this week, while the % Bears fell to 39.82, which is a large negative given the backdrop. The number of large hedge funds that are nursing massive losses is becoming another large concern. I still think the odds of a new global recession appear to be higher than investors currently perceive. The huge technical breakdowns in the TIPS spread and yield curve are telling. As well, the Philly Fed has plunged -74.1 points since March, which is the steepest 5-month decline since record-keeping began in May 1968. I expect US stocks to trade mixed-to-lower into the close from current levels on tech/financial sector pessimism, rising eurozone debt angst, tax hike fears, more shorting, global growth worries, emerging markets inflation fears, technical selling and forced margin selling.

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