Wednesday, March 28, 2012

Stocks Falling into Final Hour on Global Growth Fears, Rising Eurozone Debt Angst, Commodity Sector Weakness, Profit-Taking


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 16.43 +5.39%
  • ISE Sentiment Index 91.0 -19.47%
  • Total Put/Call 1.04 +6.12%
  • NYSE Arms 1.46 -12.32%
Credit Investor Angst:
  • North American Investment Grade CDS Index 91.22 +1.96%
  • European Financial Sector CDS Index 206.39 +2.0%
  • Western Europe Sovereign Debt CDS Index 268.12 +.58%
  • Emerging Market CDS Index 246.20 +1.93%
  • 2-Year Swap Spread 23.50 +.5 basis point
  • TED Spread 39.50 +.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -50.0 -1.0 bp
Economic Gauges:
  • 3-Month T-Bill Yield .08% -1 basis point
  • Yield Curve 185.0 -2 basis points
  • China Import Iron Ore Spot $147.70/Metric Tonne +.41%
  • Citi US Economic Surprise Index 21.50 -2.1 points
  • 10-Year TIPS Spread 2.33 -1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating a -63 open in Japan
  • DAX Futures: Indicating a -11 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Retail, Biotech and Medical sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short, then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades lower on more disappointing US economic data, commodity sector weakness, high energy prices, profit-taking and rising global growth fears. On the positive side, Oil Tanker, Bank, Homebuilding and Airline shares are higher on the day. Financial shares have held up relatively well throughout the day. Gold is falling -1.2%, Oil is down -1.5%, the UBS-Bloomberg Ag Spot Index is falling -.9% and Lumber is gaining +.5%. On the negative side, Coal, Alt Energy, Steel, Hospital, Construction, Education and Road/Rail shares are under substantial pressure, falling more than -2.0%. The Morgan Stanley Cyclical Index is underperforming substantially today, falling -1.85%, and is testing its 50-day moving average. Copper is falling -2.1%. Major Asian indices were mostly lower overnight, led down by a -2.65% decline in China. The Shanghai Composite broke down through its 50-day moving average and has declined -7.0% in about 2 weeks after getting turned away at its 200-day. China’s ChiNext Index of smaller growth companies plunged -5.1% last night. Major European Indices are falling around -1.0% today, led down by a -2.0% decline in Spain. Spanish equities are now down -5.6% ytd, which remains a large red flag for the region, as concerns over Spain’s sovereign debt intensify. The Italy sovereign cds is gaining +.71% to 372.67 bps, the China sovereign cds is gaining +2.77% to 108.17 bps, the Japan sovereign cds is jumping +3.6% to 93.13 bps, the UK sovereign cds is gaining +1.0% to 62.0 bps and the Brazil sovereign cds is gaining +1.6% to 120.83 bps. Moreover, the European Investment Grade CDS Index is climbing +3.1% to 120.94 bps. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak despite investor perceptions that the US economy is accelerating. Moreover, the Citi US Economic Surprise Index has fallen back to early-Nov. levels. Lumber is -9.0% since its Dec. 29th high despite the better US economic data, dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -18.4% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +741.0% ytd. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Commodities are getting hit today on China growth worries, a Goldman downgrade of the group and less US economic optimism. The CRB RIND Index is breaking convincingly below its 50-day moving average, which is another global economic red flag. I still expect the most economically sensitive stocks to underperform over the intermediate-term. I would like to see the market prove itself after quarter-end before becoming more aggressive on the long-side. For the recent equity advance to regain traction, I would still expect to see further European credit gauge improvement, a further subsiding of 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 short-covering, more financial optimism, falling energy prices, a bounce in the euro off the lows and investor performance angst.

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