Wednesday, March 21, 2012

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Rising Energy Prices, Global Growth Fears, Profit-Taking

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 15.09 -3.15%
  • ISE Sentiment Index 115.0 +30.68%
  • Total Put/Call .99 +15.12%
  • NYSE Arms 1.10 +17.32%
Credit Investor Angst:
  • North American Investment Grade CDS Index 86.15 -4.70%
  • European Financial Sector CDS Index 141.23 +1.61%
  • Western Europe Sovereign Debt CDS Index 229.72 +2.63%
  • Emerging Market CDS Index 229.06 +.64%
  • 2-Year Swap Spread 27.0 +.25 basis point
  • TED Spread 38.75 +1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -53.75 +1.0 bp
Economic Gauges:
  • 3-Month T-Bill Yield .09% -1 basis point
  • Yield Curve 192.0 -5 basis points
  • China Import Iron Ore Spot $144.90/Metric Tonne +.07%
  • Citi US Economic Surprise Index 29.60 -1.2 points
  • 10-Year TIPS Spread 2.40 -4 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -46 open in Japan
  • DAX Futures: Indicating a +14 open in Germany
  • Higher: On gains in my Tech, Retail, Biotech and Medical sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades slightly lower on rising Eurozone debt angst, rising energy prices, disappointing US housing data, profit-taking and global growth fears. On the positive side, Oil Tanker, Internet, Semi, Disk Drive, Biotech, Computer Service and Road & Rail shares are especially strong, rising more than +.75%. Technology and Transport shares have traded well throughout the day. The Japan sovereign cds is down -2.8% to 104.20 bps and the Saudi sovereign cds is down -2.5% to 115.07 bps. Moreover, the European Investment Grade CDS Index is down -2.21% to 92.58 bps. On the negative side, Alt Energy, Oil Service, Energy, Steel and I-Banking shares are under pressure, falling more than -.75%. Lumber is down -1.2% and Oil is up +.8%. The 10Y Yld is falling -7 bps to 2.29%. Major European indices fell around -.5%, led by a -1.3% decline in Italy. The Bloomberg European Financial Services/Bank Index is fell -.98%. The France sovereign cds is up +1.94% to 167.21 bps, the Spain sovereign cds is rising +3.41% to 423.67 bps, the Belgium sovereign cds is rising +2.1% to 221.33 bps and the Italian/German 10Y Yld Spread is rising +5.5% to 301.96 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 -9.5% 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 +750.0% ytd. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Most pundits/analysts continue to say that housing has hit a major bottom. However, despite great weather, record low mortgage rates, an improving labor market and soaring stock market, there is little evidence of a meaningful uptick in nationwide sales. The Homebuilder ETF(XHB) is up 65.0% in less than 6 months. I suspect this group will run into trouble over the coming weeks unless a notable uptick in sales materializes soon. Despite a decline in the euro over the last few weeks, plunging nat gas, a recent mild easing of tensions with Iran and some weaker US economic data, oil continues to trade well, which is a broad market negative. US stocks continue to trade very well, led by tech shares today, as they consolidate recent gains in a healthy fashion and ignore almost all negatives. 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 tech sector optimism and investor performance angst.

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