Broad Market Tone: - Advance/Decline Line: Higher
- Sector Performance: Mixed
- Volume: Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst: - VIX 15.98 -1.60%
- ISE Sentiment Index 74.0 -28.16%
- Total Put/Call .84 +2.44%
- NYSE Arms 1.23 +27.48%
Credit Investor Angst:- North American Investment Grade CDS Index 94.02 -2.22%
- European Financial Sector CDS Index 242.23 -2.12%
- Western Europe Sovereign Debt CDS Index 275.25 +.46%
- Emerging Market CDS Index 253.02 -1.05%
- 2-Year Swap Spread 30.25 +.5 basis point
- TED Spread 38.0 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -45.0 -.5 basis point
Economic Gauges:- 3-Month T-Bill Yield .09% unch.
- Yield Curve 167.0 -2 basis points
- China Import Iron Ore Spot $145.40/Metric Tonne +1.11%
- Citi US Economic Surprise Index -8.0 -6.0 points
- 10-Year TIPS Spread 2.27 -2 basis points
Overseas Futures: - Nikkei Futures: Indicating a +19 open in Japan
- DAX Futures: Indicating +14 open in Germany
Portfolio:
- Higher: On gains in my Tech, Medical, Biotech and Retail sector longs
- Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short
- Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite Eurozone debt angst, high energy prices, rising global growth fears and less US economic optimism. On the positive side, Internet, Construction, Medical, Biotech, Retail, Homebuilding and Airline shares are especially strong, rising more than +1.0%. Tech shares have traded well throughout the day. Small-caps are outperforming. Lumber is rising +2.0% and Copper is gaining +1.4%. Major European Indices are rising around +1.0%, led by a +1.9% gain in Italy. The Bloomberg European Bank/Financial Services Index is rising +1.3%. The Germany sovereign cds is down -4.0% to 83.20 bps. Moreover, the European Investment Grade CDS Index is down -3.9% to 137.51 bps. On the negative side, Coal, Oil Service, Steel, Computer, Disk Drive and HMO
shares are under meaningful pressure, falling more than -1.0%. Financial shares have lagged throughout the day again. Oil is rising +.4%, Gold is gaining +.3% and the UBS-Bloomberg Ag Spot Index is rising +.6%. Major Asian indices were mixed overnight as a +.58% gain in Korea was offset by a -.43% decline in Japan. The yen’s reaction to the BOJ’s activities overnight is a negative. The Spain sovereign cds is gaining +.6% to 475.42 bps, the China sovereign cds is rising +1.7% to 113.41 bps, the Japan sovereign cds is gaining +.97% to 95.17 bps and the Saudi sovereign cds is up +.74% to 120.5 bps.
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 early-Oct. levels. Lumber is -3.0% 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 -19.7% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +634.0% 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 10Y T-Note continues to trade too well, despite the big surge in the US sovereign credit default swap, and the euro currency can't sustain a bounce. The equity market seems even more inefficient than usual of late. The huge moves higher in certain key large-cap stocks on earnings reports that were good, but not that surprising, are a big psychological plus for the bulls. US stocks remain extraordinarily resilient, however breadth and volume remain lackluster. Despite a +1.6% gain for the S&P 500 for the week, Coal, Alt Energy, Steel, Paper, Networking, HMO, Gaming, Airline, Restaurant and Software shares were flat-to-lower on the week. As well, Asian stocks have not participated in recent US gains, which is another red flag. In my opinion, the Fed's QE has been a major reason that the US “recovery” has been very sluggish. However, most investors are convinced otherwise and continue to believe that another round is just around the corner. There remains a fairly high level of complacency among US investors regarding the rapidly deteriorating situation in Europe, in my opinion.
As I have been warning for a couple of weeks, I still believe more European bank/sovereign downgrades are on the horizon.
As long as Europe can hold off another disorderly decline in credit/economic growth, Asia remains stable and until the US “fiscal cliff” begins to be a focus of investors, select US stocks will likely work higher. However, in the second half of the year these issues will likely be of intense focus. One of my longs, (TFM), is testing its recent record high. I still see substantial outperformance for the shares over the intermediate-term.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 US economic optimism, high energy prices, rising global growth fears, weakness in some key market leaders and less financial sector optimism.
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