Friday, March 23, 2012

Stocks Slightly Higher into Final Hour on Euro Bounce, Financial 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: Underperforming
Equity Investor Angst:
  • VIX 14.85 -4.62%
  • ISE Sentiment Index 106.0 +63.08%
  • Total Put/Call 1.07 -1.83%
  • NYSE Arms .85 -51.42%
Credit Investor Angst:
  • North American Investment Grade CDS Index 91.52 +2.60%
  • European Financial Sector CDS Index 161.82 +3.37%
  • Western Europe Sovereign Debt CDS Index 227.99 unch.
  • Emerging Market CDS Index 239.15 -.05%
  • 2-Year Swap Spread 26.25 -.5 basis point
  • TED Spread 40.25 -1 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -52.0 +1 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 188.0 -3 basis points
  • China Import Iron Ore Spot $145.20/Metric Tonne unch.
  • Citi US Economic Surprise Index 27.40 -1.6 points
  • 10-Year TIPS Spread 2.37 -1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating a -56 open in Japan
  • DAX Futures: Indicating a +20 open in Germany
  • Higher: On gains in my Tech and Biotech sector longs
  • Disclosed Trades: Covered my (IWM)/(QQQ) hedges, added (SLB) long, then added some hedges 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 rising Eurozone debt angst, rising energy prices, recent equity gains, rising global growth fears and more disappointing US housing data. On the positive side, Coal, Oil Tanker, Oil Service, Ag, Construction and Energy shares are especially strong, rising more than +1.25%. Small-caps are outperforming. Financial shares have traded well throughout the day. Copper is rising +1.0% and Lumber is gaining +2.2%. The France sovereign cds is down -1.4% to 173.58 bps, the Portugal sovereign cds is down -1.8% to 1,200.57 bps and the Japan sovereign cds is down -1.6% to 104.34 bps. On the negative side, Homebuilding and Education shares are under mild pressure, falling more than -.5%. Oil is rising +1.4%, the UBS-Bloomberg Ag Spot Index is gaining +.5% and Gold is gaining +1.3%. The 10Y Yld is falling -4 bps to 2.23%. Major Asian indices were mixed overnight as a +.96% gain in Indian shares offset a -1.14% decline in Japan. Major European indices were slightly higher, however Spanish stocks fell -.86%. Spanish equities remain one of the world’s worst-performers ytd, falling -3.3%, which remains a red flag for the region. The Bloomberg European Financial Services/Bank Index is rising +.32%. The Russia sovereign cds is gaining +2.0% to 178.02 bps, the Germany sovereign cds is up +.5% to 73.80 bps and the Hungary sovereign cds is up +1.69% to 542.95 bps. Moreover, the European Investment Grade CDS Index is rising +3.82% to 100.00 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 -8.0% 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 -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +746.0% ytd. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. The most economically sensitive stocks are substantially underperforming today. The blow-up in the (TVIX) ETN, (BATS) IPO debacle and wild trade in (AAPL) shares today are concerns for market psychology. US stocks still trade pretty well as most negatives continue to be ignored. The Homebuilding Index is recouping morning losses despite more disappointing home sales data. Commodity-related equities are leading the major averages today. (USO) is surging +1.4% on above-average volume. (UNG) has stabilized over the last 10 days. (OIH) is down around -7% over the last month. The beaten-up oil service stocks should see a further lift into quarter-end on short-covering/bargain-hunting. I took a long trading position in (SLB) into morning weakness. 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 short-covering, more financial sector optimism, euro bounce and investor performance angst.

No comments: