Tuesday, March 20, 2012

Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Profit-Taking, More Shorting


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 15.38 +2.26%
  • ISE Sentiment Index 87.0 -15.53%
  • Total Put/Call .88 +3.53%
  • NYSE Arms .80 -41.84%
Credit Investor Angst:
  • North American Investment Grade CDS Index 90.40 +4.34%
  • European Financial Sector CDS Index 138.99 +.82%
  • Western Europe Sovereign Debt CDS Index 223.41 +1.68%
  • Emerging Market CDS Index 227.13 +5.10%
  • 2-Year Swap Spread 26.75 +1.5 basis points
  • TED Spread 37.75 -1.5 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -54.75 +5.0 bps
Economic Gauges:
  • 3-Month T-Bill Yield .10% +2 bps
  • Yield Curve 197.0 -2 bps
  • China Import Iron Ore Spot $144.80/Metric Tonne +.07%
  • Citi US Economic Surprise Index 30.80 -2.3 points
  • 10-Year TIPS Spread 2.44 +1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating a -76 open in Japan
  • DAX Futures: Indicating a +39 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Tech, Retail and Medical sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades slightly lower, but near session highs despite recent gains, rising Eurozone debt angst and rising global growth fears. On the positive side, Internet, Bank, I-Banking, Retail and Airline shares are especially strong, rising more than +.5%. Financial shares are trading very well again today. The UBS-Bloomberg Ag Spot Index is falling -1.1%, Gold is down -.9% and Oil is down -2.1%. The Portugal sovereign cds is down -4.2% to 1,224.92 bps. Moreover, the European Investment Grade CDS Index is down -3.8% to 94.67 bps. Weekly retail sales rose +3.3% this week versus a +3.1% gain the prior week. Retail sales are improving, but are at still sluggish rates for a recovery. On the negative side, Coal, Oil Tanker, Energy, Oil Service, Steel, Hospital, HMO, Construction and Road & Rail shares are under meaningful pressure, falling more than -1.50%. The Transports and Small-caps are underperforming. Lumber is down -3.6% and Copper is down -1.8%. Major Asian Indices were mostly lower overnight, led down by a -1.4% decline in China. China's ChiNext Index is down -4.6% in 5 days. Major European indices fell around -1.25% today, led lower by a -1.4% decline in Germany. The Bloomberg European Financial Services/Bank Index fell -1.6%. The Germany sovereign cds is rising +4.65% to 70.0 bps, the France sovereign cds is up +5.55% to 164.12 bps, the UK sovereign cds is rising +5.3% to 61.58 bps, the Italy sovereign cds is gaining +2.5% to 357.83 bps, the Japan sovereign cds is gaining +4.4% to 107.25 bps and the Spain sovereign cds is rising +2.9% to 409.67 bps. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its mid-December peak despite investor perceptions that the US economy is accelerating. Lumber is -8.3% 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 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 -20.5% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +754.0% ytd. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. US stocks continue to trade very well as they consolidate recent gains in a healthy fashion and ignore almost all negatives. The most cyclical shares underperformed significantly today. This trend will likely intensify as the year progresses. For the recent equity advance to maintain 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 a bounce in the euro off the lows, falling energy prices, short-covering, more financial sector optimism and investor performance angst.

2 comments:

Anonymous said...

love your daily updates, noticed you went to 100% long today after being at 75% for most of this year, what made you raise your exposure? thanks!

theyenguy said...

JP Morgan, JPM, Bank of America, BAC, and Citigroup, C, rose; these latter two are high beta stocks so it is not surprising to see them rise. The Financial Sector, XLF, traded up 0.5%, which made for a good entry point on the two hundred percent bear market financial SKF. The recent bank stock rally that took stocks higher is complete.

The growth trade is over as Growth Stocks, RZG, and the Value Stocks, RZV, and the Transportation Stocks, IYT, and Industrial Stocks, IYJ, traded lower. The debt trade, particularly the Sovereign Debt trade, BWX, and EMB, and to a lesser extend, the Junk Bond trade, JNK, traded lower. Thus the seigniorage of world central banks’ monetary policies has failed. Neither sovereign nation authority, nor growth potential, gives moneyness to bonds or stocks. Currency deflation is underway as the US Dollar, USD, UUP, is trading up on the month; and currencies, DBV, and CEW, traded lower, on the day. The currency demand curve, RZV:RZG, shows that investors are no longer risking investing value shares as currencies are loosing value globally.

Capitalism is dying as both credit and money have failed as the dynamos of growth and profit are turning off. Regional global governance is powering up on the need for regional security, stability, and sustainability.