Wednesday, February 22, 2012

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Less Financial Sector Optimism, Profit-Taking

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 18.20 +.05%
  • ISE Sentiment Index 115.0 +21.05%
  • Total Put/Call .91 +5.81%
  • NYSE Arms 1.24 +27.37%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.08 +.96%
  • European Financial Sector CDS Index 183.02 +2.76%
  • Western Europe Sovereign Debt CDS Index 350.54 +2.55%
  • Emerging Market CDS Index 252.57 -.23%
  • 2-Year Swap Spread 29.50 unch.
  • TED Spread 41.0 -1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -68.50 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .08% +1 bp
  • Yield Curve 171.0 -3 bps
  • China Import Iron Ore Spot $135.90/Metric Tonne +.37%
  • Citi US Economic Surprise Index 59.80 -2.0 points
  • 10-Year TIPS Spread 2.30 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +19 open in Japan
  • DAX Futures: Indicating -1 open in Germany
  • Slightly Lower: On losses in my Retail and Tech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, 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 on rising Eurozone debt angst, high energy prices, global growth fears, profit-taking, technical selling and more shorting. On the positive side, Oil Service and Hospital shares are especially strong, rising more than +1.0%. Lumber is rising +2.98%. The UK sovereign cds is falling -2.1% to 72.17 bps. On the negative side, Coal, Alt Energy, Computer, Disk Drive, Networking, Bank, HMO, Insurance, Homebuilding and Airline shares are under meaningful pressure, falling more than -1.0%. Financial shares are underperforming today and the Transports continue to trade poorly. The Transportation Index is now down -4.3% since Feb. 3 versus a +1.1% gain for the S&P 500. Gold is surging +1.0% and the UBS-Bloomberg Ag Spot Index is rising +.34%. Weekly retail sales rose +2.7% versus a +2.6% gain the prior week. The recent breakout in oil will provide another headwind for sales. Lumber is -2.0% 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 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. Overall, credit gauges have deteriorated recently despite the Greece debt deal and remain at stressed levels. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +670.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Major European indices fell around -.75% today, led by a -1.3% decline in Spanish shares. The Bloomberg European Financial Services/Bank Index is dropped -2.44%. US stocks are still technically extended short-term and are right near intermediate-term resistance with bullish sentiment elevated, energy price becoming a major global headwind and quite a bit of good news likely priced in around current levels. 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-lower into the close from current levels on rising Eurozone debt angst, high energy prices, global growth fears, profit-taking, technical selling and more shorting.

No comments: