Monday, March 26, 2012

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Dovish Fed Commentary, Short-Covering, Investor Performance Angst


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 14.63 -1.28%
  • ISE Sentiment Index 200.0 +86.92%
  • Total Put/Call .99 -4.81%
  • NYSE Arms .62 -32.71%
Credit Investor Angst:
  • North American Investment Grade CDS Index 89.93 -1.41%
  • European Financial Sector CDS Index 204.65 -2.04%
  • Western Europe Sovereign Debt CDS Index 273.47 -1.57%
  • Emerging Market CDS Index 236.42 -1.18%
  • 2-Year Swap Spread 25.0 -1.25 basis points
  • TED Spread 40.25 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -49.50 +2.5 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 189.0 +1 basis point
  • China Import Iron Ore Spot $145.50/Metric Tonne +.21%
  • Citi US Economic Surprise Index 24.20 -3.2 points
  • 10-Year TIPS Spread 2.34 -3 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a +47 open in Japan
  • DAX Futures: Indicating a +43 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 very bullish, as the S&P 500 trades at a multi-year high despite more disappointing US economic data, high energy prices, recent equity gains and rising global growth fears. On the positive side, Networking, Hospital, HMO, Construction, Education and Airline shares are especially strong, rising more than +2.0%. Small-caps are outperforming again. Financial/Tech shares have traded well throughout the day. Copper is rising +2.21%, the UBS-Bloomberg Ag Spot Index is falling -.3% and Lumber is gaining +1.5%. Major European indices rose around +.75% with the exception of Spain, which fell another -.69%. Spain remains one of the world’s worst-performers, falling -4.0% ytd. This remains a large red flag for the region. The Bloomberg European Financial Services/Bank Index is rising +.20%. The France sovereign cds is down -1.87% to 170.51 bps, the Germany sovereign cds is falling -2.3% to 72.13 bps, the Spain sovereign cds is down -1.86% to 423.33 bps, the Italy sovereign cds is down -2.91% to 369.67 bps and the Japan sovereign cds is plunging -10.9% to 93.0 bps. On the negative side, Homebuilding, Coal, Oil Tanker and Oil Service shares are lower-to-flat on the day. Gold is gaining +1.75%. The 10Y Yld is flat at 2.24%, despite today's equity rally. Major Asian indices were mostly lower, led down by a -1.78% decline in India. Despite starting off the year as one of the world’s best-performers, India’s Sensex is now testing its 200-day moving average for the second time in 3 weeks and is down about -6.0% in less than 6 weeks. 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. Moreover, the Citi US Economic Surprise Index has fallen back to mid-Nov. levels. Lumber is -8.4% 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 +744.0% ytd. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. The major averages are surging today on more dovish Bernanke commentary and quarter-end performance chasing. Quite a bit of negative global economic news has been piling up of late, however stocks continue to trade very well. Hedge funds are finally buying into the recent rally, which is likely a major contributor to the strong bid. 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 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/tech sector optimism, less eurozone debt angst, more dovish fed commentary and investor performance angst.

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