Wednesday, April 11, 2012

Stocks Higher into Final Hour on Euro Bounce, More Financial/Homebuilding Sector Optimism, Short-Covering


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.85 -2.65%
  • ISE Sentiment Index 96.0 +52.38%
  • Total Put/Call 1.07 +7.0%
  • NYSE Arms .76 -69.68%
Credit Investor Angst:
  • North American Investment Grade CDS Index 102.04 -2.19%
  • European Financial Sector CDS Index 247.14 -3.93%
  • Western Europe Sovereign Debt CDS Index 274.97 -1.36%
  • Emerging Market CDS Index 266.06 -1.29%
  • 2-Year Swap Spread 28.75 -2.5 basis points
  • TED Spread 38.75 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -56.75 +1.5 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .08% unch.
  • Yield Curve 173.0 +4 basis points
  • China Import Iron Ore Spot $148.70/Metric Tonne +.47%
  • Citi US Economic Surprise Index 4.80 +.3 point
  • 10-Year TIPS Spread 2.31 +6 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a +77 open in Japan
  • DAX Futures: Indicating +2 open in Germany
Portfolio:
  • Higher: On gains in my Retail, Medical and Biotech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades back to its 50-day moving average despite Eurozone debt angst, less tech sector optimism, rising global growth fears, less dovish fed commentary and rising energy prices. On the positive side, Alt Energy, Oil Tanker, Networking, Homebuilding, Restaurant and Bank shares are especially strong, rising more than +1.75%. Small-caps and cyclicals are outperforming. Financials have traded well throughout the day. Major European indices rose around +1.25% today, led higher by a +1.9% gain in Spain. Spain is now down -11.6% ytd, which remains a large red flag for the region. The Bloomberg European Financial Services/Bank Index rose +1.9% and is now down -13.8% in about 3 weeks. The Germany sovereign cds is down -1.9% to 74.16 bps, the France sovereign cds is down -1.88% to 186.0 bps and the Portugal sovereign cds is down -2.93% to 1,102.17 bps. Moreover, the European Investment Grade CDS Index is down -3.0% to 142.02 bps. On the negative side, Steel, Software, HMO, Drug, Computer Service, Disk Drive, Computer, Paper, Ag and Energy shares are lower-to-flat on the day. Tech shares have underperformed throughout the day. Oil is gaining +1.3%, Lumber is down -1.1% and Copper is down -.44%. The 10-year yield is only rising +4 bps to 2.03%. Major Asian indices fell around -.75% overnight, led lower by a -1.1% decline in Hong Kong. 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 mid-Oct. levels. Lumber is -7.0% since its Dec. 29th high despite the better US economic data, 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 -18.0% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +712.0% ytd. China's March copper imports fell -4.6% on the month. Overall, credit gauges continue to weaken too much as Europe's debt crisis appears to be in the early stages of reigniting. Market-leader (AAPL) and Dr. Copper did not participate in today's equity rally and bonds barely gave back any of their recent gains, which are all red flags. While the European markets calmed slightly today on rhetoric from an ECB executive board member, I suspect that the markets will eventually force the ECB into actual action before the latest round of debt crisis jitters temporarily subside again. For the recent equity advance to regain traction, I would 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-lower into the close from current levels on Eurozone debt angst, less tech sector optimism, rising global growth fears, profit-taking, less dovish fed commentary and rising energy prices.

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