Broad Market Tone: - Advance/Decline Line: Higher
- Sector Performance: Almost Every Sector Rising
- Volume: Light
- Market Leading Stocks: Performing In Line
Equity Investor Angst: - VIX 19.34 -7.33%
- ISE Sentiment Index 100.0 +31.58%
- Total Put/Call 1.01 -2.88%
- NYSE Arms .91 -62.12%
Credit Investor Angst:- North American Investment Grade CDS Index 96.18 -1.40%
- European Financial Sector CDS Index 174.32 -1.70%
- Western Europe Sovereign Debt CDS Index 352.40 -.13%
- Emerging Market CDS Index 245.0 -2.63%
- 2-Year Swap Spread 25.75 -1.75 bps
- TED Spread 39.75 -.75 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -64.50 +2.25 bps
Economic Gauges:- 3-Month T-Bill Yield .08% +1 bp
- Yield Curve 167.0 unch.
- China Import Iron Ore Spot $143.0/Metric Tonne unch.
- Citi US Economic Surprise Index 46.90 -.6 point
- 10-Year TIPS Spread 2.22 +4 bps
Overseas Futures: - Nikkei Futures: Indicating +74 open in Japan
- DAX Futures: Indicating -5 open in Germany
Portfolio:
- Higher: On gains in my Tech, Retail, Medical and Biotech sector longs
- Disclosed Trades: None
- Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades near session highs despite yesterday's swoon, rising energy prices, a reversal lower in (AAPL), an inline ADP jobs report and rising global growth fears. On the positive side, Homebuilding, Semi, Networking, Bank and Disk Drive shares are especially strong, rising more than +1.5%. Financial and Tech shares have traded well throughout the day. Copper is rising +.9% and the UBS-Bloomberg Ag Spot Index is down -1.1%. Major European indices are rising around +.50%, however Spanish shares are flat. Spain remains the worst-performing index Europe and is now down -4.7% ytd, which is a red flag for the region. The Bloomberg European Financial Services/Bank Index is rising +1.01%. The Italy sovereign cds is falling -2.5%, the Russia sovereign cds is down -2.4% to 188.60 bps and the UK sovereign cds is down -3.9% to 65.33 bps. On the negative side, Steel, Utility, Alt Energy, Airline, REIT and Paper shares are
lower-to-flat on the day. Oil is rising +1.5%, Gold is gaining +.65% and Lumber is down -1.2%. The 10Y T-Note Yield at 1.97%, remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data.
Despite the recent positive US economic data, the Philly Fed/ADS Real-Time Business Conditions Index has declined -5.08% over the last 10 days and continues to trend lower from its peak in mid-December.
Lumber is -5.5% 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 Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauge improvement has stalled over the last few weeks and these gauges are still at stressed levels.
China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +711.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Major Asian indices fell around -.75% overnight, led lower by a -1.4% decline in Australian shares. This article in China Daily is
openly hostile towards the real estate industry and seems to indicate that tightening measures on the industry are likely to stay in place for some time. Stocks are rebounding from morning lows on a bounce in the euro, an inline ADP jobs report and rumors that the Fed is considering a new “sterilized” QE program. I doubt that the Fed would embark on this given the current macro backdrop. In my opinion this would prove a big mistake as it would boost inflation expectations too much, thus harming the economy later in the year. Its unlikely recent stock weakness has already run its course and I will be looking for signs of another move lower by next week at the latest. For an intermediate-term equity advance from current levels, 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-lower into the close from current levels on Eurozone debt angst, rising energy prices, rising global growth fears, more shorting and profit-taking.
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