Monday, August 29, 2011

Stocks Surging into Final Hour on European Equity Rally, Diminished Hurricane Concerns, Short-Covering, Bargain-Hunting


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Very Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 32.39 -9.0%
  • ISE Sentiment Index 133.0 +44.5%
  • Total Put/Call .92 -22.03%
  • NYSE Arms .36 -32.56%
Credit Investor Angst:
  • North American Investment Grade CDS Index 122.92 -2.58%
  • European Financial Sector CDS Index 240.05 +2.1%
  • Western Europe Sovereign Debt CDS Index 303.0 unch.
  • Emerging Market CDS Index 288.32 -3.77%
  • 2-Year Swap Spread 30.0 unch.
  • TED Spread 32.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 206.0 +6 bps
  • China Import Iron Ore Spot $178.30/Metric Tonne unch.
  • Citi US Economic Surprise Index -55.0 +12.8 points
  • 10-Year TIPS Spread 2.03% +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +90 open in Japan
  • DAX Futures: Indicating +29 open in Germany
Portfolio:
  • Higher: On gains in my Tech, Medical, Biotech and Retail sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 rallies meaningfully despite Eurozone debt angst, global growth worries and rising food/energy prices. On the positive side, Airline, Gaming, Homebuilding, Construction, Insurance, Hospital, I-Banking, Bank, Alt Energy, Oil Tanker, Steel, Disk Drive and Networking shares are especially strong, rising over +3.75% on the day. Small-caps and cyclicals are substantially outperforming again. (XLF) has traded very well throughout the day. Gold is falling -2.3%. The 10-year yield is rising +8 bps to 2.27%. The Greece sovereign cds is down -2.7% to 2,189.28 bps and the Germany sovereign cds is falling -1.46% to 83.69 bps. Key European equity indices surged another +2.0% today. On the negative side, Road & Rail, Restaurant, Retail, Telecom and Utility shares are underperforming, rising less than +2.0%. Oil is rising +2.4%, Copper is falling -.25%, Lumber is down -.58% and the UBS-Bloomberg Ag Spot Index is up +.51%. Rice is right near a multi-year high, rising +31.0% in about 8 weeks. The US price for a gallon of gas is +.02/gallon today to $3.61/gallon. It is up .47/gallon in about 7 months. The France sovereign cds is rising +.2% to 165.28 bps, the Russia sovereign cds is gaining +.44% to 206.47 bps and the Belgium sovereign cds is rising +.91% to 243.72 bps. The Eurozone Financial Sector CDS Index is still very near it recent all-time high. The Citi Eurozone Economic Surprise Index has plunged -108.4 points in about 3 weeks to -102.30. The UBS-Bloomberg Ag Spot Index is at a new record high, which is a large negative. The Shanghai Composite did not participate in the Asian equity rally overnight, falling -1.37%, and is down -8.25% ytd. The ongoing trend higher in key cds remains a large negative. Volume was very light on today's stock advance as this year's worst-performers posted the sharpest gains. As well, the euro was unable to rise meaningfully despite equity trader optimism over the questionable prospects for a TARP-style European bank bailout. While stocks could easily head higher in the short-term, I continue to believe any sustainable equity advance must be accompanied by a meaningful decline in Eurozone debt angst, which has yet to be seen. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminished hurricane concerns, bargain-hunting, technical buying and financial sector strength.

No comments: