Tuesday, November 08, 2011

Stocks Surging into Final Hour on Euro Bounce, Short-Covering, Less Financial Sector Pessimism, Technical Buying

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 28.31 -5.13%
  • ISE Sentiment Index 90.0 +1.12%
  • Total Put/Call 1.23 +26.80%
  • NYSE Arms .78 +6.95%
Credit Investor Angst:
  • North American Investment Grade CDS Index 124.09 -.31%
  • European Financial Sector CDS Index 236.79 +3.37%
  • Western Europe Sovereign Debt CDS Index 338.0 +1.09%
  • Emerging Market CDS Index 283.59 -.91%
  • 2-Year Swap Spread 36.0 unch.
  • TED Spread 44.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 183.0 +6 bps
  • China Import Iron Ore Spot $122.90/Metric Tonne +1.04%
  • Citi US Economic Surprise Index 23.60 +2.0 points
  • 10-Year TIPS Spread 2.13 -1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +89 open in Japan
  • DAX Futures: Indicating +89 open in Germany
  • Higher: On gains in my Tech, Retail and Medical sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added some back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on yesterday's reversal higher despite rising Eurozone debt angst, global growth worries and rising energy/food prices. On the positive side, Oil Tankers, Oil Service, Paper, Networking, Bank, Hospital, Homebuilding and Airline shares are especially strong, rising more than +1.50%. (XLF) has traded very well throughout the day. Gold is falling -.76% and Copper is gaining +.34%. Weekly retail sales have held up very well during this entire market pullback. They have averaged about a +4.5% gain over the last 4 months, which was one of the tells that the US economy was not plunging into recession even as investors were beginning to price this during Aug./Sept. However, this week sales rose +3.1%, which was down from a +4.7% gain the prior week and the weakest since the week of April 5th. This is only one week, but it warrants close attention, especially given the recent spike in energy prices. On the negative side, Biotech and Gaming shares are lower on the day. Oil is rising +.9%, the UBS-Bloomberg Ag Spot Index is rising +.9% and Lumber is falling -1.2%. The Nikkei fell -1.3% overnight and is now down -15.4% ytd. Brazilian equities are not participating in today's rally and are down -14.8% ytd. The Germany sovereign cds is up +2.69% to 89.50 bps, the France sovereign cds is rising +1.52% to 184.50 bps, the Italy sovereign cds is up +3.14% to 522.67 bps, the Spain sovereign cds is gaining +1.54% to 401.0 bps, the Ireland sovereign cds is gaining +2.21% to 729.0 bps, the Belgium sovereign cds is up +2.4% to 293.33 bps and the Israel sovereign cds is up +.6% to 170.0 bps. Rice is still close to its multi-year high, rising +26.0% in about 4 months. The Italian 10-year yield jumped +11 bps to 6.77% today, which is the highest since Aug. 1997. The Italian/German 10-Year Yield Spread is jumping another +9.13 bps to 496.78 bps, which is another new all-time high. The TED spread continues to trend higher and is near the highest since June 2010. The Libor-OIS spread is now at the widest since July 2010. The 2-Year Euro Swap spread is making a new cycle high today, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -34.20% since February 16th and -30.2% since Sept. 7th. It is noteworthy that various Eurozone credit gauges are not confirming today's equity optimism over Berlusconi's apparent departure. While China's upcoming inflation readings will likely show deceleration, I doubt that any meaningful policy easing is in store. Emerging market inflation is still a larger problem than perceived, in my opinion. Moreover, the recent surge in energy prices is becoming a concern and could pose another major threat to the global economy on any further spike higher. Despite many negative headwinds, the broad US equity market still trades well and looks higher in the short-term on fund year-end performance-chasing, perceptions that Europe is moving in the right direction, seasonality and better US economic data. However, I still think the rapidly deteriorating fundamentals in Europe will likely mute upside traction and eventually weigh meaningfully on the major averages again over the coming months. As of today, I am posting further commentary on the new Wall Street All-Stars site in the Platinum Conversation section on the front page. Please stop by and check it out. I expect US stocks to trade mixed-to-higher into the close from current levels on fund performance-chasing, short-covering, bargain-hunting, less financial sector pessimism, seasonality, a bounce in the euro and technical buying.


TK said...

Appreciate your daily commentary. Thank you.

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chris said...

First time I have seen your picture in WallstrretAllstars website, your thoughts on market and economy is so useful.

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