Monday, February 06, 2012

Stocks Falling Slightly Into Final Hour on Eurozone Debt Angst, Profit-Taking, Less Tech/Financial Sector Optimism, Global Growth Fears


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 17.91 +4.74%
  • ISE Sentiment Index 98.0 -30.50%
  • Total Put/Call .87 +17.57%
  • NYSE Arms .83 +40.18%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.39 -.57%
  • European Financial Sector CDS Index 159.05 -1.28%
  • Western Europe Sovereign Debt CDS Index 326.69 -1.82%
  • Emerging Market CDS Index 255.58 -.20%
  • 2-Year Swap Spread 28.0 +1 bp
  • TED Spread 46.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -73.0 -1.25 bps
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 166.0 -4 bps
  • China Import Iron Ore Spot $144.80/Metric Tonne +1.05%
  • Citi US Economic Surprise Index 79.70 -4.0 points
  • 10-Year TIPS Spread 2.18 +2 bps
Overseas Futures:
  • Nikkei Futures: Indicating -29 open in Japan
  • DAX Futures: Indicating +1 open in Germany
Portfolio:
  • Higher: On gains in my Biotech, Retail, Medical and Tech sector longs
  • Disclosed Trades: None of note
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near session highs and just slightly lower on the day, despite less financial/tech sector optimism, technical selling, global growth fears and Eurozone debt angst. On the positive side, Coal, Oil Tanker, Oil Service and Biotech shares are especially strong, rising more than +1.0%. Oil is falling -.61%, Gold is down -.14% and Lumber is jumping +3.81%. Oil continues to trade very 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 rising Mid-east tensions. Major Asian indices were mostly higher overnight, led by a +1.1% gain in Japanese shares. The Belgium sovereign cds is falling -3.35% to 212.83 bps and the France sovereign cds is falling -2.05% to 163.17 bps. Moreover, the European Investment Grade CDS Index is falling -2.03% to 114.71 bps. On the negative side, Semi, Bank, Hospital, HMO, Construction, Homebuilding, Gaming, Road & Rail and Airline shares are under pressure, falling more than -1.0%. Financial and Tech shares have underperformed throughout the day. Major European indices were mostly lower on the day, led down by a -.66% decline in French shares. Copper is falling -.94% and the UBS-Bloomberg Ag Spot Index is rising +.51%. The Russia sovereign cds is rising +2.78% to 221.17 bps and the Brazil sovereign cds is rising +1.45% to 139.50 bps. The Portugal sovereign cds is up +19.0% in less than 3 weeks. Lumber is down slightly 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 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 -3 bps today to 1.89%, 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 improved, but are still at stressed levels. China Iron Ore Spot has plunged -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +480.0% ytd to the highest level since March of last year and approaching their April 2010 record. The market is trading as if ANY outcome in Greece will be a market positive. The S&P 500 still looks poised to test 1,350 over the coming days after a brief pause to digest recent gains. Longer-term, however, economic growth in the Eurozone will likely continue to weaken, which will likely again become an issue for investors as the debt crisis flares once again. 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 US economic optimism, short-covering and lower energy prices.

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