Monday, August 22, 2011

Stocks Slightly Higher into Final Hour on Eurozone Stock Gains, Short-Covering, Tech Sector Strength, Bargain-Hunting

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 42.19 -2.0%
  • ISE Sentiment Index 102.0 +45.71%
  • Total Put/Call 1.06 -19.08%
  • NYSE Arms .86 -50.92%
Credit Investor Angst:
  • North American Investment Grade CDS Index 123.44 +3.99%
  • European Financial Sector CDS Index 237.08 +11.41%
  • Western Europe Sovereign Debt CDS Index 295.17 -.34%
  • Emerging Market CDS Index 287.25 +4.18%
  • 2-Year Swap Spread 32.0 +3 bps
  • TED Spread 32.0 +2 bps
Economic Gauges:
  • 3-Month T-Bill Yield -.01% -1 bp
  • Yield Curve 189.0 +2 bps
  • China Import Iron Ore Spot $177.80/Metric Tonne +.28%
  • Citi US Economic Surprise Index -76.60 +5.9 points
  • 10-Year TIPS Spread 2.04% +2 bp
Overseas Futures:
  • Nikkei Futures: Indicating +72 open in Japan
  • DAX Futures: Indicating -18 open in Germany
  • Slightly Higher: On gains in my Tech, Medical and Retail sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades just slightly higher despite recent sharp losses, tech sector strength and strong gains in European equities. On the positive side, Defense, Computer, Computer Service and Telecom shares are especially strong, rising more than +1.0% on the day. Tech sector shares have trades well throughout the day. On the negative side, Gaming, Hospital and Coal shares are under pressure, dropping more than -1.0%. Cyclicals and small-caps are underperforming again. (XLF) has traded poorly throughout the day. Gold is rising +2.27%, the UBS-Bloomberg Ag Spot Index is rising +.71%, Copper is falling -1.04% and Oil is rising +2.37%. Rice is still near a multi-year high, rising +28.0% in about 8 weeks. The US price for a gallon of gas is -.02/gallon today to $3.57/gallon. It is up .43/gallon in about 7 months. The Germany sovereign cds is rising +2.34% to 82.66 bps, the France sovereign cds is rising +5.16% to 157.83 bps, the Greece sovereign cds is rising +2.17% to 2,021.44 bps, the Portugal sovereign cds is gaining +4.37% to 940.02 bps, the Italy sovereign cds is rising +4.24% to 371.50 bps and the UK sovereign cds is rising +2.1% to 82.64 bps. Moreover, the European Investment Grade CDS Index is gaining +4.39% to 140.68 bps. The FRA/OIS Spread made a new multi-year high today and is rising +4.65 bps to 47.25 bps. The 3-Month Euro Basis Swap is falling -2.78 bps to -87.40 bps, which is back to its recent low. The 2-Year Swap Spread is very near its recent high and the TED spread is making a new multi-year high. The Eurozone Financial Sector CDS Index is surging to another new all-time high today. The Nikkei fell -1.04% last night and is approaching its tsunami lows in March. Korean shares fell another -1.96% last night and are down -16.59% ytd. Germany's DAX could not rally with the rest of Europe today and continues to trade horribly, falling -20.8% ytd. China's 7-day repo rate is surging +83 bps today to 5.0%. The UBS-Bloomberg Ag Spot Index is very close to its record high, which is a huge negative. The market remains very oversold. However, I still believe too many investors appear to be depending on the Fed to make some large announcement, which is a mistake, in my opinion, given recent inflation readings and the surge in food prices. As well, gauges of credit angst in Europe continue to deteriorate rapidly despite today's eurozone equity gains, which remains a large negative. I expect US stocks to trade mixed-to-lower into the close from current levels on financial sector pessimism, rising eurozone debt angst, tax hike fears, more shorting, global growth worries, emerging markets inflation fears and rising food/energy prices.


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