Friday, November 25, 2011

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Rising Energy Prices, Technical Selling

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Falling
  • Volume: Light
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 34.09 +.32%
  • ISE Sentiment Index 72.0 unch.
  • Total Put/Call 1.12 -5.88%
  • NYSE Arms 1.05 -68.62%
Credit Investor Angst:
  • North American Investment Grade CDS Index 144.76 -.68%
  • European Financial Sector CDS Index 339.04 +6.36%
  • Western Europe Sovereign Debt CDS Index 376.08 +2.16%
  • Emerging Market CDS Index 347.11 n/a
  • 2-Year Swap Spread 55.0 +3 bps
  • TED Spread 50.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .01% unch.
  • Yield Curve 169.0 +2 bps
  • China Import Iron Ore Spot $140.40/Metric Tonne -.50%
  • Citi US Economic Surprise Index 41.10 n/a
  • 10-Year TIPS Spread 1.94 +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating -10 open in Japan
  • DAX Futures: Indicating -17 open in Germany
  • Slightly Higher: On gains in my tech/retail sector longs and emerging markets shorts
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 gives up morning gains on rising Eurozone debt angst, rising global growth fears and rising energy prices. On the positive side, Defense, Homebuilding, REIT, Food and Tobacco shares are especially strong, rising more than +.5%. (XLF) has outperformed throughout the day. Copper is rising +.29%, gold is down -.67% and the UBS-Bloomberg Ag Spot Index is declining -.41%. The 10-Year Yield is rising +8 bps to 1.96%. Major European equity indices rose .5-1% today. On the negative side, Alt Energy, Oil Tanker, Ag, Steel, Drug, Biotech, Disk Drive, Coal, Internet, Hospital, Construction and Computer shares are under pressure, falling more than -1.0%. Small-cap shares are underperforming again. Oil is rising +.20% and lumber is falling -.85%. Major Asian equity indices fell 1-1.5% overnight. The Hang Seng continues to trade very poorly, falling another -1.4%, and is now down -23.2% ytd. The Germany sovereign cds is soaring +9.0% to 121.0 bps, the France sovereign cds is climbing +1.81% to 252.17 bps, the Spain sovereign cds is gaining +2.19% to 490.83 bps, the Italy sovereign cds is climbing +.76% to 557.87 bps, the UK sovereign cds is gaining +2.13% to 104.0 bps, the Ireland sovereign cds is gaining +2.55% to 777.67 bps, the Russia sovereign cds is gaining +4.06% to 300.10 bps and the Belgium sovereign cds is gaining +3.85% to 410.83 bps. The France and Belgium sovereign cds are making new all-time highs again and the Spain, Hungary, Italy sovereign cds are very close to their recent record highs. The Germany sovereign cds is testing its Oct. 4th multi-year high and the UK sovereign cds is making a new multi-year high. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is at the highest since May 2010. The FRA/OIS Spread is at the highest since May 2010. The 2yr Euro Swap Spread is near the highest since Nov. 2008. The 3M Euro Basis Swap is down -4.02% to -148.87 bps, which is the worst since October 2008. The Libor-OIS spread is near the widest since July 2009, which is also noteworthy considering the equity bounce off the lows. China Iron Ore Spot has plunged -26.83% since February 16th and -22.43% since Sept. 7th. It appears to me some key European officials are trying to manufacture an even greater crisis to generate the political will necessary for a 'momentous deal'. However, even if the market eventually gets what it wants, more money printing and greater debt for the region, these measures are not a long-term solution for an acute debt crisis, in my opinion. Trading still has a somewhat complacent feel to it as stocks surged off the morning lows again, accompanied by light volume, despite the ongoing significant deterioration in European credit gauges. I still think the risk in equities remains substantial unless a positive catalyst emerges from Europe very soon. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, more shorting, rising energy prices and technical selling.

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