Tuesday, November 29, 2011

Stocks Rising into Final Hour on Euro Bounce, Short-Covering, Better US Economic Data, Seasonality


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Light
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 30.97 -3.61%
  • ISE Sentiment Index 127.0 -28.65%
  • Total Put/Call .97 +8.99%
  • NYSE Arms .94 +599.66%
Credit Investor Angst:
  • North American Investment Grade CDS Index 139.09 -.36%
  • European Financial Sector CDS Index 325.33 +5.17%
  • Western Europe Sovereign Debt CDS Index 358.0 -1.89%
  • Emerging Market CDS Index 328.63 .50%
  • 2-Year Swap Spread 52.0 -2 bps
  • TED Spread 52.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .01% unch.
  • Yield Curve 174.0 +3 bps
  • China Import Iron Ore Spot $130.80/Metric Tonne -.91%
  • Citi US Economic Surprise Index 51.40 +10.9 points
  • 10-Year TIPS Spread 2.00 +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating -50 open in Japan
  • DAX Futures: Indicating -10 open in Germany
Portfolio:
  • Slightly Higher: On gains in my retail sector longs and emerging markets shorts
  • Disclosed Trades: None
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 builds slightly on yesterday's sharp gains, despite Eurozone debt angst, rising global growth fears, financial sector pessimism and rising food/energy prices. On the positive side, Utility, Energy, Telecom, Homebuilding, Retail and Education shares are especially strong, rising more than +1.0%. Copper is rising +1.02%. The Germany sovereign cds is falling -3.2% to 107.33 bps, the France sovereign cds is dropping -5.32% to 224.17 bps and the Belgium sovereign cds is dropping -5.07% to 359.66 bps. Johnson Redbook weekly retail sales rose +3.9% this week versus a +3.3% gain the prior week. This is down from a +4.6% average weekly gain during Oct., but up from a +3.1% gain the week of Nov. 8. On the negative side, Airline, Networking, Internet, Steel, Oil Tanker and Alt Energy shares are under pressure, falling more than 1.0%. Small-caps and cyclicals are relatively weak. (XLF) has underperformed throughout the day. Oil is rising +1.8%, gold is gaining +.37%, the UBS-Bloomberg Ag Spot Index is rising +.98% and lumber is falling -3.07%. The Italian 10-year yield is up +1 bp today to 7.24%. The European Financial Sector CDS Index is back very near its Nov. 25 all-time high. The France and Belgium sovereign cds are still near all-time highs and the Spain, Hungary, Italy sovereign cds are still close to their recent record highs. The Germany sovereign cds is still near its Oct. 4th multi-year high and the UK sovereign cds is still near a new multi-year high. The TED spread continues to trend higher and is at the highest since May 2009. The 2-Year Swap spread is very near the highest since May 2010. The FRA/OIS Spread is near the highest since May 2010. The 2yr Euro Swap Spread is near the highest since Nov. 2008. The 3M Euro/Dollar Cross Currency Basis Swap is down -6.06% to -157.50 bps, which is the worst since October 2008. The Libor-OIS spread is the widest since June 2009, which is also noteworthy considering the equity bounce off the recent lows. India's Sensex fell -.98% last night, despite gains in the rest of Asia, and is down -22.0% ytd. As well, Brazil's Bovespa fell -1.28% today and is down -20.2% ytd. China Iron Ore Spot has plunged -31.8% since February 16th and -27.7% since Sept. 7th. The 10-year yield is flat over the last 2 days at 2.0% despite the large equity rally. Stocks are rising today on a jump in US consumer confidence and more leveraged IMF/EFSF European debt crisis solution rumors. Volume remains light, leadership is lacking and breadth is poor. Given the market's oversold state, investment manager underperformance and seasonal strength, I still suspect stocks can build on recent gains over the short-term. However, I still believe that even if the market eventually gets what it appears to want, money printing and greater debt for the Eurozone, these measures are not long-term solutions for an acute debt crisis. Recent data indicate that Europe is already in mild recession. Moreover, an outright credit crunch appears to be developing in the region, which would lead to a much more severe contraction. I still think the risk in equities remains substantial over the intermediate-term unless a real positive catalyst emerges from Europe over the coming weeks. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, a bounce in the euro, seasonality, technical buying and investor performance angst.

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