Tuesday, April 03, 2012

Stocks Lower into Final Hour on Less Dovish Fed Commentary, Global Growth Worries, Euro Weakness, Profit-Taking


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Falling
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 16.33 +4.41%
  • ISE Sentiment Index 121.0 +32.97%
  • Total Put/Call .88 +6.02%
  • NYSE Arms 1.79 +134.58%
Credit Investor Angst:
  • North American Investment Grade CDS Index 90.48 +.26%
  • European Financial Sector CDS Index 216.88 -.49%
  • Western Europe Sovereign Debt CDS Index 264.09 -.75%
  • Emerging Market CDS Index 246.07 +1.40%
  • 2-Year Swap Spread 25.25 -.25 basis point
  • TED Spread 39.75 -1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -50.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .07% +1 basis point
  • Yield Curve 191.0 +4 basis points
  • China Import Iron Ore Spot $147.60/Metric Tonne unch.
  • Citi US Economic Surprise Index 11.80 -3.2 points
  • 10-Year TIPS Spread 2.37 unch.
Overseas Futures:
  • Nikkei Futures: Indicating a +20 open in Japan
  • DAX Futures: Indicating a -20 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Tech, Retail and Biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades lower on a decline in the euro, global growth fears, profit-taking, less dovish fed commentary and more shorting. On the positive side, Oil Tanker, Restaurant and Airline shares are especially strong, rising more than +.5%. Oil is falling -.97%, Gold is down -2.0% and the UBS-Bloomberg Ag Spot Index is down -.56%. The 10Y Yld is rising +11 bps to 2.29%. Major Asian indices were mostly higher overnight, led by a +1.3% gain in Hong Kong. The Germany sovereign cds is down -1.85% to 70.66 bps, the Portugal sovereign cds is down -2.24% to 1,044.87 bps and the UK sovereign cds is down -2.12% to 61.83 bps. Weekly retail sales rose +3.6% versus a +3.4% gain the prior week. On the negative side, Coal, Alt Energy, Energy, Oil Service, Steel, Semi, Networking and Education shares are under meaningful pressure, falling more than -1.5%. Financials have underperformed throughout the day. Cyclicals are also relatively weak. Copper is down -.87% and Lumber is down -.42%. Major European indices fell around -1.75% today, led lower by a -2.71% decline in Spain. Spanish equities are now down -8.66% ytd, which remains a large red flag for the region. 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 -9.0% 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 -18.5% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +741.0% ytd. Investors are finally beginning to pay attention to some negatives today. Spain's economic troubles are intensifying at a faster pace than the "kick-the-can" crowd had hoped, which will likely spur another intense bout of European debt crisis jitters over the coming months. Market leader (AAPL) continues to help prop up the entire market and has resumed its recent parabolic move higher. While the shares are extremely extended technically, its momentum will likely carry the stock still higher in the short-term before a pullback commences. Long AAPL. 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-higher into the close from current levels on short-covering, lower energy prices and more US economic optimism.

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