Friday, November 11, 2011

Stocks Rising into Final Hour on Euro Bounce, Short-Covering, Tech Sector Strength, Investor Performance Angst

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Every Sector Rising
  • Volume: Light
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 29.97 -8.63%
  • ISE Sentiment Index 70.0 -40.68%
  • Total Put/Call .95 -18.10%
  • NYSE Arms .46 -46.34%
Credit Investor Angst:
  • North American Investment Grade CDS Index 129.17 +.21%
  • European Financial Sector CDS Index 250.59 -2.58%
  • Western Europe Sovereign Debt CDS Index 342.67 -1.32%
  • Emerging Market CDS Index 301.23 -.18%
  • 2-Year Swap Spread 45.0 unch.
  • TED Spread 46.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 182.0 +1 bp
  • China Import Iron Ore Spot $134.80/Metric Tonne +2.15%
  • Citi US Economic Surprise Index 34.30 +2.4 points
  • 10-Year TIPS Spread 2.09 unch.
Overseas Futures:
  • Nikkei Futures: Indicating +75 open in Japan
  • DAX Futures: Indicating +2 open in Germany
  • Slightly Higher: On gains in my Tech, Retail, Medical and Biotech 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 builds on yesterday's gains as it approaches its 200-day moving average again despite Eurozone debt angst, rising global growth worries and rising energy prices. On the positive side, Oil Tanker, Steel, Semi, Construction and Road & Rail shares are especially strong, rising more than +2.5%. Small-caps and cyclicals are outperforming. Tech share have traded well throughout the day. Copper is rising +2.77%, Lumber is up +3.2% and the UBS-Bloomberg Ag Spot Index is down -.33%. Major European equity indices rose 2-3% today. The Italian/German 10-Year Yield spread is falling another -54.61 bps to 456.21 bps. The Italy sovereign cds is falling -4.94% to 540.0 bps, the UK sovereign cds is down -3.77% to 89.33 bps, and the Ireland sovereign cds is down -3.3% to 725.66 bps. Moreover, the European Investment Grade CDS Index is falling -4.64% to 166.85 bps. On the negative side, Telecom, Insurance, Drug, Biotech, I-Bank, Ag and Energy shares are underperforming, rising less than +1.5%. Oil is rising +1.2% and Gold is jumping +1.7%. India shares fell -1.0% overnight and are now down -16.2% ytd. The Israel sovereign cds is up +.48% to 187.13 bps, the Brazil sovereign cds is rising +1.35% to 159.33 bps and the France sovereign cds is just -.9% lower to 201.17 bps. Rice is still close to its multi-year high, rising +22.5% in about 4 months. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is rising to the highest since June 2010 today. The FRA/OIS Spread is now at the highest since June 2010. The Libor-OIS spread is now at the widest since July 2009, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -28.2% since February 16th and -23.9% since Sept. 7th. Oil continues to trade well and a convincing surge above $105/bbl. would be another large negative for the fragile global economy. Select market-leading stocks are still underperforming today, which is always a red flag. Moreover, volume is very poor. Finally, credit gauges in Europe, which have deteriorated substantially this week, are not confirming the recent equity advance. I remain cautious. If the situation in Europe begins to show substantial improvement with confirmation in credit gauges and the S&P 500 can convincingly take out its 200-day moving average I would likely become more aggressive on the long-side into year-end. I expect US stocks to trade modestly lower into the close from current levels on Eurozone debt angst, rising global growth worries, rising energy prices, profit-taking, more shorting and technical selling.

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