Monday, September 26, 2011

Stocks Rising into Final Hour on Eurozone Debt Crisis Rumors, Quarter-End Short-Covering/Window-Dressing, Less Financial Sector Pessimism

Broad Market Tone:

  • Advance/Decline Line: Slightly Lower
  • Sector Performance: Most Sectors Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 41.28 +.02%
  • ISE Sentiment Index 111.0 -24.49%
  • Total Put/Call 1.02 -11.30%
  • NYSE Arms .49 -42.82%
Credit Investor Angst:
  • North American Investment Grade CDS Index 138.79 -1.45%
  • European Financial Sector CDS Index 256.33 -.70%
  • Western Europe Sovereign Debt CDS Index 353.83 -.46%
  • Emerging Market CDS Index 365.35 -.63%
  • 2-Year Swap Spread 29.0 -1 bp
  • TED Spread 36.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 167.0 +8 bps
  • China Import Iron Ore Spot $172.90/Metric Tonne -.69%
  • Citi US Economic Surprise Index -40.40 +.4 point
  • 10-Year TIPS Spread 1.80 +5 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +85 open in Japan
  • DAX Futures: Indicating +29 open in Germany
  • Slightly Higher: On gains in my Medical and Retail sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added some back
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 bounces off technical support on a precious metals collapse, short-covering, bargain-hunting, quarter-ending window dressing, numerous Eurozone rumors and less financial sector pessimism. On the positive side, Coal, Energy, Oil Service, Steel, Computer Service, Bank, Insurance and Education shares are especially strong, rising more than +2.0%. Cyclicals are outperforming. (XLF) has also outperformed throughout the day again. Copper is rising +1.4% and Gold is dropping -1.9%. The 10-year yield is rising +6 bps to 1.90%. The Spain sovereign cds is falling -3.4% to 400.83 bps, the Belgium sovereign cds is declining -4.18% to 282.0 bps and the Brazil sovereign cds is down -3.7% to 201.87 bps. Major European indicies rose 2-3% today. On the negative side, Alt Energy, Oil Tanker, Biotech, Road & Rail, Gaming, REIT, Semi and Ag shares are slightly lower to flat on the day. Small-caps are underperforming. Tech shares have also underperformed throughout the day. The UBS-Bloomberg Ag Spot Index is rising +.6% and oil is gaining +.82%. Rice is still close to its multi-year high, rising +27.0% in about 12 weeks. The average US price for a gallon of gas is -.05/gallon today to $3.49/gallon. It is up .35/gallon in about 7 months. The Russia sovereign cds is gaining +3.2% to 318.17 bps, the Hungary sovereign cds is rising +3.1% to 505.92 bps, the China sovereign cds is gaining +.9% to 160.81 bps, the Portugal sovereign cds is rising +.83% to 1,167.83 bps and the France sovereign cds is rising +.55% to 196.67 bps. The Germany sovereign cds is still right near a record high. The China sovereign cds is braking to the highest level since April 2009. The Russia sovereign cds is breaking out to the highest since July 2009. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still very near their records. The 3-Month Euro Basis Swaps is falling -1.54 bps to -106.42 bps. The Emerging Markets Sovereign CDS Index is surging another +16.8 bps today to a record 302.7 bps. The China Blended Corporate Spread Index is continuing its parabolic move higher, rising another +40.0 bps to 820.0 bps, which is the highest since February 2009. The China Development Bank Corp cds is surging +9.0% to 328.98 bps, which is the highest since March 2009. Asian shares fell substantially overnight with most making new 52-week lows. Various credit gauges continue to indicate intense global recession fears. Gauges of Asian credit continue to rapidly deteriorate. The S&P 500 bounced off the lower end of its recent trading range again. However, given how oversold we are, technical support, the break in the precious metals fever, a bounce in financials and numerous rumors out of Europe, today's lackluster equity breadth and volume is noteworthy once again. With many of the year's biggest equity losers posting the largest gains today, much of today's advance is likely related to quarter-end short-covering/window dressing. Today's rally could gain traction in the short-term on any perceived "solution" to the Eurozone debt problem. However, if Europe's "solution" to fixing an acute sovereign debt crisis is to use leveraged debt in another attempt at kicking the can down the road, any equity rally will very likely prove unsustainable over the intermediate-term. I expect US stocks to trade modestly higher into the close from current levels on quarter-end short-covering/window-dressing, less financial sector pessimism, bargain-hunting, technical buying and Eurozone debt crisis rumors.

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