Monday, April 23, 2012

Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Less US Economic Optimism, Rising Global Growth Fears, Less Tech Sector Optimism


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 19.06 +9.29%
  • ISE Sentiment Index 73.0 -35.40%
  • Total Put/Call .84 -3.45%
  • NYSE Arms 1.81 +35.72%
Credit Investor Angst:
  • North American Investment Grade CDS Index 101.31 +1.57%
  • European Financial Sector CDS Index 254.92 +3.07%
  • Western Europe Sovereign Debt CDS Index 285.87 +1.18%
  • Emerging Market CDS Index 267.17 +.71%
  • 2-Year Swap Spread 31.50 +1.25 basis points
  • TED Spread 39.50 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -47.50 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 168.0 -1 basis point
  • China Import Iron Ore Spot $148.10/Metric Tonne -.20%
  • Citi US Economic Surprise Index 4.30 -.7 point
  • 10-Year TIPS Spread 2.24 -1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating a -100 open in Japan
  • DAX Futures: Indicating +21 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Medical, Tech and Retail sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 breaks convincingly below its 50-day moving-average on rising Eurozone debt angst, less tech sector optimism, high energy prices, rising global growth fears and less US economic optimism. On the positive side, Road & Rail shares are slightly higher on the day. Oil is falling -.99% and Gold is down -.33%. The Portugal sovereign cds is down -4.4% to 1,019.10 bps. On the negative side, Alt Energy, Steel, Paper, Networking, Construction, Homebuilding, Airline, Ag, I-Banking, Hospital and Food shares are under meaningful pressure, falling more than -1.75%. Small-caps are underperforming. Tech shares have traded poorly throughout the day. Copper is falling -1.7%, Lumber is down -.62% and the UBS-Bloomberg Ag Spot Index is rising +.2%. The 10-year yield is falling another -3 bps to 1.93%. Major Asian indices fell around -.75% overnight, led lower by a -1.84% decline in Hong Kong. Asian losses accelerated in the final hour of trading. Major European indices are falling around -3.0% today, led lower by a -3.8% decline in Italy(-8.2% ytd). Spanish shares are falling another -2.8% and are now down -20.1% ytd(very close to its March 2009 low). The Bloomberg European Bank/Financial Services Index is falling another -3.3% and is down -17.8% in a little over one month. The Germany sovereign cds is gaining +4.4% to 90.28 bps(up over +30.0% in 7 days), the Spain sovereign cds is gaining +1.5% to 509.70 bps, the France sovereign cds is gaining +2.7% to 205.08 bps, the Japan sovereign cds is gaining +2.2% to 97.12 bps, the Russia sovereign cds is gaining +2.8% to 206.17 bps, the UK sovereign cds is up +2.8% to 64.74 bps, the Israel sovereign cds is up +2.9% to 197.13 bps and the US sovereign cds is soaring +19.8% to 36.55 bps. Moreover, the European Investment Grade CDS Index is gaining +4.0% to 149.34 bps and the Italian/German 10Y Yld Spread is rising +3.3% to 408.62 bps. The big rise in the US sovereign cds today may indicate a significant change with respect to inventor perceptions regarding the health of the US economy. US Rail Traffic continues to soften. 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 -8.0% since its Dec. 29th high despite the better US economic data, improving sentiment towards homebuilders and the broad equity rally. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -18.2% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +692.0% ytd. China's March refined-copper imports fell -8.0% on the month. Singapore Electronics exports decelerated to a gain of +2.8% in March from a +23.3% gain in February. The recent weak/erratic technical action in shares of (AAPL), a market-leader and the largest company in the world, remains a concern. Long AAPL. Bonds still trade too well, copper continues to trade poorly and the euro currency can't sustain a bounce. News from Europe over the weekend was even worse than the market had priced in. Recent developments in France are hugely negative for the long-term economic health of the region, in my opinion. The usual morning dip buyers made a stand in the financials(XLF). There remains a fairly high level of complacency regarding the rapidly deteriorating situation in Europe, in my opinion. The ongoing significant rise in German cds remains a red flag. More bank/sovereign downgrades are likely in the region over the coming weeks. 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 rising Eurozone debt angst, less US economic optimism, high energy prices, rising global growth fears and less tech sector optimism.

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