Monday, March 19, 2012

Stocks Rising into Final Hour on Euro Bounce, More Financial/Tech Sector Optimism, Short-Covering, Investor Performance Angst


Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 14.80 +2.28%
  • ISE Sentiment Index 108.0 -28.48%
  • Total Put/Call .75 unch.
  • NYSE Arms 1.26 +87.67%
Credit Investor Angst:
  • North American Investment Grade CDS Index 86.64 -2.73%
  • European Financial Sector CDS Index 137.89 -4.50%
  • Western Europe Sovereign Debt CDS Index 219.68 -2.29%
  • Emerging Market CDS Index 215.99 -2.61%
  • 2-Year Swap Spread 25.25 unch.
  • TED Spread 39.25 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -59.75 +.25 bp
Economic Gauges:
  • 3-Month T-Bill Yield .08% unch.
  • Yield Curve 199.0 +5 bps
  • China Import Iron Ore Spot $144.70/Metric Tonne unch.
  • Citi US Economic Surprise Index 33.10 -7.9 points
  • 10-Year TIPS Spread 2.43 +1.5 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -29 open in Japan
  • DAX Futures: Indicating a +23 open in Germany
Portfolio:
  • Higher: On gains in my Tech, Retail and Biotech sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades near session highs despite recent gains, rising energy prices, some disappointing US economic data and rising global growth fears. On the positive side, Coal, Oil Tanker, Internet, Networking, I-Banking, Gaming, Computer, Education and Airline shares are especially strong, rising more than +1.0%. Financial and Tech shares are outperforming again. Copper is rising +.7%. The 10Y Yield is rising +8 bps to 2.38%. The Germany sovereign cds is down -2.2% to 67.0 bps, the France sovereign cds is down -5.58% to 155.17 bps, the Italy sovereign cds is down -1.99% to 348.91 bps and the Brazil sovereign cds is down -4.22% to 115.34 bps. Moreover, the European Investment Grade CDS Index is down -5.06% to 98.40 bps. On the negative side, Telecom and Homebuilding shares are under mild pressure, falling more than -.50%. Oil is up +.61%. Major Asian Indices were mostly lower overnight, led down by a -1.1% decline in India. Indian shares had been one of the world's best performers ytd, but have fallen -6.2% in 4 weeks as inflation/growth worries persist. I expect these shares to underperform over the intermediate-term, as well. 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. The China Blended Corporate Spread Index is rising +.85% to 591.0 bps. Lumber is -3.6% 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 over -60.0% from its Oct. 14th high and is now down around -50.0% 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 +783.0% 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. One of my longs, market leader (AAPL), keeps grinding higher despite the many recent opportunities for investors to "sell the news". I mentioned another one of my longs, (GOOG), was trading well last week and it is breaking out of its recent range today. Oil is trading as if the next trading move is higher, which remains a broad market negative. Rhetoric in Asia with regards to North Korea is heating up, which is something else to keep an eye on. As well, the 2013 US fiscal cliff will become more of a focus for investors 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, short-covering, more financial/tech sector optimism and investor performance angst.

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