Wednesday, December 14, 2011

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Technical Selling, Tech Sector Pessimism

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 26.37 +3.78%
  • ISE Sentiment Index 75.0 -33.63%
  • Total Put/Call 1.07 -8.55%
  • NYSE Arms 1.23 -27.61%
Credit Investor Angst:
  • North American Investment Grade CDS Index 130.99 +5.06%
  • European Financial Sector CDS Index 309.67 +7.58%
  • Western Europe Sovereign Debt CDS Index 389.10 +1.68%
  • Emerging Market CDS Index 316.72 +4.34%
  • 2-Year Swap Spread 48.0 +2 bps
  • TED Spread 55.0 +1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -147.0 -6.5 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 166.0 -6 bps
  • China Import Iron Ore Spot $134.80/Metric Tonne -1.82%
  • Citi US Economic Surprise Index 75.0 -.3 point
  • 10-Year TIPS Spread 1.95 -6 bps
Overseas Futures:
  • Nikkei Futures: Indicating -80 open in Japan
  • DAX Futures: Indicating +13 open in Germany
  • Slightly Higher: On gains in my index hedges and emerging markets shorts
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 breaks back below its 50-day moving average and trades near session lows on rising Eurozone debt angst, rising global growth fears, some earnings jitters, technical selling and more shorting. On the positive side, REIT and Airline shares are higher on the day. (XLF) is holding up relatively well. Gold is down -3.8%, the UBS-Bloomberg Ag Spot Index is dropping -2.3% and Oil is plunging -5.05%. On the negative side, Alt Energy, Energy, Oil Service, Internet, Networking, Road & Rail, Homebuilding, Construction, I-Banking, Disk Drive and Computer shares are under substantial pressure, falling more than -2.0%. (XLK) has traded poorly throughout the day. Cyclical and small-cap shares are substantially underperforming. Copper is falling -4.77% and Lumber is dropping -2.0%. The 10-year yield is falling -6 bps to 1.90%. The Italy sovereign cds is rising +.7% to 573.33 bps, the France sovereign cds is rising +1.28% to 236.83 bps, the Germany sovereign cds is gaining +2.5% to 106.17 bps, the Spain sovereign cds is rising +1.04% to 447.50 bps, the China sovereign cds is gaining +3.1% to 145.97 bps, the Russia sovereign cds is rising +3.5% to 275.0 bps, the Brazil sovereign cds is jumping +5.5% to 158.56 bps and the Japan sovereign cds is gaining +2.34% to 135.71 bps. Moreover, the European Investment Grade CDS Index is rising +1.69% to 180.62 bps. The Italian/German 10Y Yield Spread is surging +4.7% to 487.55 bps. The Western Europe Sovereign CDS Index is making another new all-time high today. The TED spread continues to trend higher and is at the highest since June 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -4.6% to -147.0 bps, which is now back to Nov. 28th levels. The FRA-OIS Spread is surging +8.3% to 60.0 bps. The Libor-OIS spread is very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -29.8% since February 16th and -25.5% since Sept. 7th. The Citi Asia-Pacific Economic Surprise Index fell another -.6 point today to -26.10, which is the worst since April 2009. Asian equities continue to trade very poorly. The Shanghai Composite fell another -.9% overnight to the lowest level since March 2009 and is now down -20.6% ytd. As well, India's Sensex fell another -.8% and is now down -22.6% ytd. Major European equity indices fell between 2-3% today. French shares dropped -3.33% and are now down -22.0% ytd. European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand. Chinese officials' comments last night were very bearish for commodities. Oil has much more downside intermediate-term, in my opinion. I added to my (SCO) long today. Despite recent stock losses, trading still has an overall complacent feel as volume remains poor and each push lower is met by intense dip-buying. As well, most investor sentiment gauges are still registering too much bullishness given the deteriorating macro backdrop. This is likely due to year-end window-dressing and seasonality. The situation in Europe is reaching another point that risks spinning out of control. Unless a significant positive catalyst emerges over the coming weeks, further equity weakness in 1Q is becoming more likely. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, earnings jitters, rising global growth fears, tech sector pessimism, technical selling and more shorting.

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