Tuesday, January 31, 2012

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Profit-Taking, More Shorting, Technical Selling


Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.48 +.41%
  • ISE Sentiment Index 90.0 -15.01%
  • Total Put/Call .88 -5.38%
  • NYSE Arms 1.41 -.56%
Credit Investor Angst:
  • North American Investment Grade CDS Index 102.58 -.79%
  • European Financial Sector CDS Index 184.41 -3.21%
  • Western Europe Sovereign Debt CDS Index 345.57 +.49%
  • Emerging Market CDS Index 268.87 +.04%
  • 2-Year Swap Spread 30.0 -3 bps
  • TED Spread 49.0 -1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -71.50 +1.5 bps
Economic Gauges:
  • 3-Month T-Bill Yield .05% unch.
  • Yield Curve 158.0 -4 bps
  • China Import Iron Ore Spot $142.40/Metric Tonne +1.79%
  • Philly Fed ADS Real-Time Business Conditions Index .0250 unch.
  • Citi US Economic Surprise Index 53.20 -10.3 points
  • 10-Year TIPS Spread 2.10 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +9 open in Japan
  • DAX Futures: Indicating +31 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Biotech, Medical and Tech sector longs
  • Disclosed Trades: Added to my (IWM), (QQQ) hedges and then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades slightly lower, but near session highs, despite falling Eurozone debt angst, falling energy prices and gains in overseas equities. On the positive side, HMO and Disk Drive shares are especially strong, rising more than +.75%. Financial and Tech shares are outperforming. Oil is falling -.45% and Lumber is jumping +4.2%. Oil continues to trade poorly given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and soaring Mid-east tensions. Major Asian indices rose around +.75%, led by a 1.96% gain in India shares. Major European equity indices rose around +.5%, led by a +1.04% gain in France shares. Spanish stocks fell slightly and remain Europe’s worst-performers, dropping -.31% ytd. The Portugal sovereign cds is falling -3.0% to 1,480.63 bps and the Italian/German 10Y Yld Spread is falling -3.1% to 416.70 bps. Moreover, the European Investment Grade CDS Index is falling -2.45% to 131.84 bps. On the negative side, Coal, Alt Energy, Hospital, Homebuilding and Retail shares are under pressure, falling more than -1.0%. Copper is falling -.81%, the UBS-Bloomberg Ag Spot Index is up +.74% and Gold is rising +.55%. The France sovereign cds is gaining +2.55% to 181.17 bps, the Japan sovereign cds is gaining +1.4% to 138.25 bps and the Russia sovereign cds is rising +1.22% to 224.67 bps. The Portugal sovereign cds is up +37.9% in 12 days and just off its all-time high. Lumber has declined -9.0% since its Dec. 29th high and is still near the lower end of its recent range(near a multi-year low) despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is falling -5 bps to 1.80% and remains a large concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Weekly retail sales rose +2.7% this week versus a +2.9% gain the prior week. This is now a sub-par pace for a recovery and the slowest growth since the week of April 5th of last year. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last 3 weeks after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still near its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -21.3% since Sept. 7th of last year. Shanghai Copper Inventories are up over +300.0% ytd to the highest level since March of last year. I still believe that a more cautious approach is warranted in the short-term given that several key investor sentiment gauges are registering too much complacency, stocks are technically extended, global growth is still slowing and Eurozone debt angst could flare again at any time. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on falling Eurozone debt angst, more financial/tech sector optimism, short-covering and falling energy prices.

No comments: