Wednesday, February 15, 2012

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Apple Inc. Reversal, Rising Energy Prices


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Around Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 21.26 +8.80%
  • ISE Sentiment Index 58.0 -26.58%
  • Total Put/Call 1.06 +10.42%
  • NYSE Arms 1.29 +26.25%
Credit Investor Angst:
  • North American Investment Grade CDS Index 99.59 +1.22%
  • European Financial Sector CDS Index 200.21 +4.82%
  • Western Europe Sovereign Debt CDS Index 349.35 +3.67%
  • Emerging Market CDS Index 264.80 +2.21%
  • 2-Year Swap Spread 28.50 -.5 bp
  • TED Spread 38.75 +.25 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -72.25 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .11% unch.
  • Yield Curve 165.0 +1 bp
  • China Import Iron Ore Spot $142.20/Metric Tonne -1.58%
  • Citi US Economic Surprise Index 63.30 -5.2 points
  • 10-Year TIPS Spread 2.21 unch.
Overseas Futures:
  • Nikkei Futures: Indicating -30 open in Japan
  • DAX Futures: Indicating -38 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Biotech/Tech sector longs and index hedges
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades near session lows on rising Eurozone debt angst, less financial sector optimism, a key reversal in market-leader (AAPL), rising global growth fears, higher energy prices, profit-taking and technical selling. On the positive side, Coal, Networking and HMO shares are especially strong, rising more than +.75%. Tech shares are holding up relatively well. The US sovereign cds is down -5.2% to 37.01 bps. On the negative side, Steel, Oil Tanker, Construction and Road & Rail shares are under meaningful pressure, falling more than -1.5%. Cyclicals and small-caps are underperforming. The Transports are also especially weak and are close to testing their 50-day moving average. Copper is falling -.39%, Oil is rising +.7%, Gold is gaining +.44% and Lumber is down -1.8%. The Spain sovereign cds is gaining +4.41% to 392.0 bps(+8.8% in 5 days), the France sovereign cds is gaining +4.78% to 194.67 bps(+20.5% in 5 days), the Italy sovereign cds is rising +3.82% to 416.0 bps(+11.6% in 5 days), the Germany sovereign cds is gaining +3.57% to 88.67 bps(+5.8% in 5 days), the Portugal sovereign cds is gaining +3.55% to 1,147.98 bps and the Belgium sovereign cds is gaining +3.74% to 235.67 bps(+10.8% in 5 days). The European Financial Sector CDS Index has risen +30.4% in 6 days. The ECB Overnight Facility is right back near its Jan. 17 record high. Moreover, the European Investment Grade CDS Index is rising +4.2% to 127.50 bps today. Lumber is -6.0% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. 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 flat at 1.93% today, which remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last month after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have ceased their recent improvement and are still at stressed levels. China Iron Ore Spot has plunged -24.1% since Sept. 7th of last year. Shanghai Copper Inventories are up +657.0% ytd to another new all-time high. My AAPL long's recent parabolic rise, with a flat overall market, was a red flag for the broad market. As well, questions surrounding Greece continue to linger and cds are starting to rise too much again. I still see little evidence to suggest that Europe's debt crisis won't flare up again in an even more intense fashion down the road. The Transports continue to lag, which is also a red flag. I suspect the S&P 500 has put in, at the very least, a short-term top. 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 modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, less financial sector optimism, technical selling, profit-taking, rising energy prices, a key reversal lower in market leader (AAPL) and more shorting.

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