Thursday, February 09, 2012

Stocks Rising Slightly into Final Hour on Euro Bounce, Tech Sector Optimism, Short-Covering, US Economic Data

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Around Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 18.44 +1.54%
  • ISE Sentiment Index 126.0 +51.81%
  • Total Put/Call .87 +7.41%
  • NYSE Arms .87 -9.06%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.29 -2.05%
  • European Financial Sector CDS Index 167.15 +2.40%
  • Western Europe Sovereign Debt CDS Index 325.73 -.02%
  • Emerging Market CDS Index 257.78 +.37%
  • 2-Year Swap Spread 27.0 -1.25 bps
  • TED Spread 42.25 -1.25 bps
  • 3-Month EUR/USD Cross-Currency Basis Swap -67.50 -.75 bp
Economic Gauges:
  • 3-Month T-Bill Yield .08% +1 bp
  • Yield Curve 177.0 +5 bps
  • China Import Iron Ore Spot $144.70/Metric Tonne -.28%
  • Citi US Economic Surprise Index 76.60 +.2 point
  • 10-Year TIPS Spread 2.19 -1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +43 open in Japan
  • DAX Futures: Indicating +20 open in Germany
  • Higher: On gains in my Tech and Retail sector longs
  • Disclosed Trades: None
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near session highs, despite recent sharp gains, global growth fears, higher energy prices, less financial sector optimism and Eurozone debt angst. On the positive side, Coal, Alt Energy, Education, Tobacco and Construction shares are especially strong, rising more than +1.0%. Tech shares have traded well throughout the day. Copper is up +1.64%, Lumber is rising +2.4% and Gold is down -.32%. 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 rising Mid-east tensions. Major European indices rose around +.5% today with the Bloomberg European Bank/Financial Services Index rising +.73%. Despite the Greece debt resolution machinations, investors continue to price is a Eurozone debt crisis “can-kicking” and stabilizing economic growth in the region. The Spain sovereign cds is falling -1.1% to 348.0 bps and the US sovereign cds is falling -1.2% to 37.79 bps. On the negative side, Disk Drive, Networking, Hospital, REIT and Medical shares are under pressure, falling more than -.75%. The Financials have stalled and the Transports are lower over the last 5 days. Oil is rising +.8%. The France sovereign cds is rising +1.54% to 162.83 bps, the Portugal sovereign cds is gaining +1.33% to 1,212.68 bps, the Ireland sovereign cds is rising +1.1% to 564.0 bps and the Belgium sovereign cds is rising +3.3% to 216.67 bps. The Portugal sovereign cds is still up +13.0% in less than 3 weeks. Lumber is flat 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 rising +5 bps to 2.04% today, but 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 continue to improve, 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 +535.0% ytd to the highest level since March of last year and approaching their April 2010 record. Major Asian indices were mixed overnight despite a higher-than-expected inflation reading out of China. I still believe that inflation in many key emerging markets remains a larger problem than commonly perceived. Significant monetary easing in these markets with inflation around current levels will prove a large policy error over the intermediate-term, in my opinion. The AAII % Bulls jumped to 51.64 this week, while the % Bears fell to 20.19. The 6-week moving average of % Bears is 20.36%, the lowest since July 2005. While most investor sentiment gauges continue to flash caution, hedge fund underperformance in January indicated a large group of investors did not have enough market exposure, which is a positive. Almost all negatives continue to be ignored as the “buy every dip” mentality remains firmly in place. However, given market leader Apple’s(AAPL) accelerating gains over the last week, and tech leadership in general, the broad market doesn’t trade as well as I would have expected. 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, a bounce in the euro and tech sector optimism.

No comments: