Thursday, February 02, 2012

Stocks Slightly Higher into Final Hour on More Financial/Tech Sector Optimism, Lower Energy Prices, Short-Covering, Less Eurozone Debt Angst

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 18.16 -2.10%
  • ISE Sentiment Index 100.0 -6.54%
  • Total Put/Call .87 +3.57%
  • NYSE Arms .93 +12.31%
Credit Investor Angst:
  • North American Investment Grade CDS Index 99.89 +.58%
  • European Financial Sector CDS Index 169.77 -3.20%
  • Western Europe Sovereign Debt CDS Index 330.22 -.75%
  • Emerging Market CDS Index 261.32 -.15%
  • 2-Year Swap Spread 26.0 -2 bps
  • TED Spread 45.0 -3 bps
  • 3-Month EUR/USD Cross-Currency Basis Swap -69.0 +4.5 bps
Economic Gauges:
  • 3-Month T-Bill Yield .08% +3 bps
  • Yield Curve 160.0 -2 bps
  • China Import Iron Ore Spot $143.10/Metric Tonne +.21%
  • Philly Fed ADS Real-Time Business Conditions Index .0768 -.78%
  • Citi US Economic Surprise Index 49.50 -.4 point
  • 10-Year TIPS Spread 2.14 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +9 open in Japan
  • DAX Futures: Indicating +1 open in Germany
  • 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 bullish, as the S&P 500 tests last week's high on falling Eurozone debt angst, more financial/tech sector optimism, falling energy prices and gains in overseas equities. On the positive side, Coal, Alt Energy, Oil Service, Networking, Homebuilding, Gaming and Airline shares are especially strong, rising more than +1.0%. Financial and Tech shares are outperforming again. Oil is falling -.75%. 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 Mid-east tensions. Major Asian indices rose around +1.0% overnight, led by a +2.0% gain in Hong Kong shares. I think investors have gotten a bit carried away with stocks in the region as slowing growth and stubbornly high inflation remain significant issues. Major European indices are up around +.5%, led by a .87% gain in Spanish shares. The Bloomberg European Bank/Financial Services index is up +1.1%. Investors continue to price in a European debt crisis “can-kicking” and a stabilization/improvement in economic activity in the region. While this optimism could last awhile longer, I still expect further economic contraction as more austerity measures take hold over the intermediate-term. The Portugal sovereign cds is falling -4.2% to 1,317.22 bps, the France sovereign cds is down -2.94% to 169.32 bps and the Japan sovereign cds is down -2.54% to 133.39 bps. Moreover, the European Investment Grade CDS Index is falling -3.1% to 122.40 bps. On the negative side, Oil Tanker, Defense, HMO and Education shares are under pressure, falling more than -.75%. The Transports are also underperforming. Copper is dropping -1.33%, Lumber is down -.8% and Gold is rising +.95%. The Italy sovereign cds is rising +.42% to 393.95 bps, the Russia sovereign cds is gaining +1.52% to 220.67 bps and the Brazil sovereign cds is rising +.61% to 141.85 bps. The Portugal sovereign cds is up +23.7% in 14 days and near its recent all-time high. Lumber has declined -7.1% 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 flat at 1.82%, which remains a large 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 3 weeks 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 -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up over +300.0% ytd to the highest level since March of last year. The AAII % Bulls fell to 43.81, while the % Bears rose to 25.08 this week. Overall, investor sentiment gauges are still registering too much complacency given the macro backdrop. Several key market-leading stocks have stalled of late. 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 some market-leaders are stalling. 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. One of my longs, (ISRG), hit a new all-time high on volume today. The stock is extended short-term, but I still expect significant outperformance over the intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on more tech/financial sector optimism, short-covering, declining Eurozone debt angst and lower energy prices.

1 comment:

theyenguy said...

Finviz shows Intuitive Surgical, ISRG, has an ascending wedge pattern; prices usually fall from such patterns. It’s rise is now complete and represents a short selling opportunity.

I recommend to all that they dollar cost average into gold and take possession of it in the form of bullon.

I provide alink to a Finviz Screener which shows the overextended debt contagion and LTRO funded rally.