Thursday, March 29, 2012

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Less Financial/Homebuilding Sector Optimism, Profit-Taking


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 16.19 +4.65%
  • ISE Sentiment Index 122.0 +35.56%
  • Total Put/Call 1.08 +5.88%
  • NYSE Arms 1.17 -17.39%
Credit Investor Angst:
  • North American Investment Grade CDS Index 93.22 +2.79%
  • European Financial Sector CDS Index 217.64 +5.64%
  • Western Europe Sovereign Debt CDS Index 273.15 +1.88%
  • Emerging Market CDS Index 247.39 +.45%
  • 2-Year Swap Spread 24.75 +1.25 basis points
  • TED Spread 41.25 +1.75 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -51.0 -1.0 bp
Economic Gauges:
  • 3-Month T-Bill Yield .06% -2 basis points
  • Yield Curve 182.0 -3 basis points
  • China Import Iron Ore Spot $147.70/Metric Tonne unch.
  • Citi US Economic Surprise Index 19.60 -1.9 points
  • 10-Year TIPS Spread 2.31 -2 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -39 open in Japan
  • DAX Futures: Indicating a +32 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Retail, Biotech, Medical sector longs and index hedges
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short, then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 reverses morning losses and trades near session highs despite more disappointing US economic data, less financial/homebuilding sector optimism, high energy prices, profit-taking and rising global growth fears. On the positive side, Coal, Oil Tanker, Steel, Hospital, HMO and Education shares are especially strong, rising more than +.75%. Tech shares have held up relatively well throughout the day. Oil is down -2.3%, the UBS-Bloomberg Ag Spot Index is falling -1.14%, Copper is gaining +.53% and Lumber is gaining +1.11%. On the negative side, Bank, Ag, I-Banking, Homebuilding, Insurance and Gaming shares are under pressure, falling more than -1.0%. The Financials have traded poorly throughout the day. Major European Indices are falling around -1.5% today, led down by a -3.3% plunge in Italy. As well, Spanish equities are now down -7.7% ytd, which remains a large red flag for the region, as concerns over Spain’s sovereign debt intensify. The Germany sovereign cds is jumping +7.5% to 76.83 bps, the France sovereign cds is gaining +3.99% to 173.67 bps, the Spain sovereign cds is gaining +3.73% to 438.10 bps, the Italy sovereign cds is gaining +6.5% to 397.0 bps, the Japan sovereign cds is gaining +5.9% to 98.58 bps and the Russia sovereign cds is gaining +4.2% to 188.01 bps. Moreover, the European Investment Grade CDS Index is gaining +4.4% to 126.28 bps. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak despite investor perceptions that the US economy is accelerating. Moreover, the Citi US Economic Surprise Index has fallen back to early-Nov. levels. 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 -18.4% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +741.0% ytd. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Today's late day rally was led by recent poor-performers, such as the Coal stocks, which likely indicates quarter-end short-covering. The macro news continues to worsen, while US stocks continue to mostly ignore it. Investor complacency is fairly elevated once again. I would like to see the market prove itself after quarter-end before becoming more aggressive on the long-side. For the recent equity advance to regain 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, falling energy prices, a bounce in the euro off the lows and investor performance angst.

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