Tuesday, February 14, 2012

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

Broad Market Tone:

  • Advance/Decline Line: Sharply Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 20.56 +7.98%
  • ISE Sentiment Index 78.0 +9.86%
  • Total Put/Call 1.02 +17.24%
  • NYSE Arms 1.21 +24.84%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.39 +.86%
  • European Financial Sector CDS Index 190.96 +5.02%
  • Western Europe Sovereign Debt CDS Index 336.82 +1.41%
  • Emerging Market CDS Index 260.39 +.99%
  • 2-Year Swap Spread 29.0 -.5 bp
  • TED Spread 38.50 -2.0 bps
  • 3-Month EUR/USD Cross-Currency Basis Swap -72.25 -4.0 bps
Economic Gauges:
  • 3-Month T-Bill Yield .11% +1 bp
  • Yield Curve 164.0 -7 bps
  • China Import Iron Ore Spot $142.20/Metric Tonne -1.83%
  • Citi US Economic Surprise Index 68.50 +2.3 points
  • 10-Year TIPS Spread 2.21 -3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +19 open in Japan
  • DAX Futures: Indicating -26 open in Germany
  • Slightly Higher: On gains in my Retail, Medical 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, less financial sector optimism, rising global growth fears, profit-taking and technical selling. On the positive side, Oil Tanker, Computer, Semi and HMO shares are slightly higher on the day. The UBS-Bloomberg Ag Spot Index is falling -.86% and Gold is falling -.45%. 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 over the last few weeks. On the negative side, Coal, Alt Energy, Steel, Bank, REIT and Education shares are under meaningful pressure, falling more than -2.0%. Cyclicals and small-caps are relatively weak. Financial shares are also underperforming today. Copper is falling -.86% and Lumber is down -2.7%. The Spain sovereign cds is gaining +2.31% to 375.33 bps(+8.5% in 5 days), the France sovereign cds is gaining +2.86% to 186.50 bps(+14.7% in 5 days), the Italy sovereign cds is rising +.93% to 401.67 bps(+6.8% in 5 days) and the Belgium sovereign cds is gaining +1.8% to 227.67 bps(+9.3% in 5 days). The European Financial Sector CDS Index has risen +19.7% in 5 days. 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 -5 bps to 1.92% 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. Weekly retail sales rose +2.6% this week versus a +2.5% gain the prior week. This remains a subpar rate for a recovery. 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 -22.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +618.0% ytd to a new all-time high as they eclipsed their April 2010 record today. Stocks are cutting losses on news that Greece will deliver a letter of commitment tomorrow to lenders, however I still view it as highly unlikely they will meet those commitments over the intermediate-term. 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. Investor sentiment remains too complacent, however performance angst is likely already a factor in some circles, which is a positive. The fact that the tech sector and broad market have stalled with market-leader (AAPL) soaring is another negative. 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), is hitting a new all-time high today. The stock is extended short-term, however longer-term I still see outperformance for the shares. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, rising global growth fears, less financial sector optimism, technical selling, profit-taking and more shorting.

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