Monday, April 16, 2012

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Less US Economic Optimism, Market Leader Weakness, High Energy Prices


Broad Market Tone:

  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 19.52 -.15%
  • ISE Sentiment Index 60.0 -40.0%
  • Total Put/Call 1.07 +13.83%
  • NYSE Arms 1.13 -39.88%
Credit Investor Angst:
  • North American Investment Grade CDS Index 101.01 +.35%
  • European Financial Sector CDS Index 250.27 +1.30%
  • Western Europe Sovereign Debt CDS Index 281.84 +.87%
  • Emerging Market CDS Index 266.72 +.37%
  • 2-Year Swap Spread 20.75 -.25 basis point
  • TED Spread 39.0 +.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -53.75 -3.0 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .08% unch.
  • Yield Curve 170.0 -2 basis points
  • China Import Iron Ore Spot $149.30/Metric Tonne -.07%
  • Citi US Economic Surprise Index 13.0 -1.7 points
  • 10-Year TIPS Spread 2.27 -1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating a +19 open in Japan
  • DAX Futures: Indicating +23 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Technology, Medical and Biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, took profits in a few longs, covered some index trading hedges
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades just slightly lower despite rising Eurozone debt angst, less tech sector optimism, rising global growth fears, less US economic optimism, weakness in market leaders and high energy prices. On the positive side, Utility, Disk Drive, Bank, Drug, REIT, Retail and Airline shares are especially strong, rising more than +.75%. Gold is down -.31% and the UBS-Bloomberg Ag Spot Index is down -1.6%. Major European indices rose around +.25%, led higher by a +.63% gain in Germany. However, Spanish shares are not participating in today’s bounce and are now down -15.84% ytd. As well, the Bloomberg European Banks/Financial Services Index is falling another -1.2% today and is down -16.3% in less than 1 month. On the negative side, Alt Energy, Oil Service, Steel, Internet, Networking, Medical, HMO, Restaurant, Gaming and Education shares are especially weak, falling more than -1.0%. Growth stock leaders are substantially underperforming. As well, tech shares have underperformed throughout the day. Lumber is down -.7%. Major Asian indices were mostly lower overnight, led down by a -1.74% decline in Japan(-7.0% in about 3 weeks). The Germany sovereign cds is gaining +4.65% to 76.59 bps, the France sovereign cds is up +1.91% to 190.58 bps, the Japan sovereign cds is gaining +3.3% to 103.25 bps, the Brazil sovereign cds is up +2.3% to 132.91 bps and the Spain sovereign cds is up +1.9% to 511.50 bps(+10.2% in 5 days to new all-time high). Moreover, the Italian/German 10Y Yld Spread is rising +2.3% to 387.52 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 mid-Oct. levels. Lumber is -9.0% since its Dec. 29th high despite the better US economic data, improving sentiment towards homebuilders and 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 seaon. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -40.0% 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 +680.0% 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-leaders are continuing their recent trend of underperformance, copper trades poorly and bonds trade too well, which remain red flags. I continue to believe the massive tax hikes/spending cuts that are coming down the pike in Spain will only worsen their economy further, which will likely prove the domino that tips the region into full blown crisis mode once again over the coming months. I continue to believe the LTRO, while a short-term can-kicking solution, will be viewed in a very negative light over the intermediate-term. There is now a 37% chance for a Spanish default. US investor complacency regarding the situation in Europe remains fairly high, in my opinion. (XLF) is up +17% ytd. Much of its outperformance was related to the beliefs that Europe had kicked the can again and that US housing had bottomed ahead of a vigorous spring selling season. Both of those expectations are looking increasingly suspect now. (XLF) has modestly underperformed over the last 2 weeks. I expect its underperformance to intensify as the year progresses. Large-cap growth stocks had been boosting the major averages more than commonly perceived, in my opinion. The average stock as measured by the Value Line Geometric Index(VGY) is down -10.8% since May 2 of last year, while the Nasdaq 100 has risen +12.3% over this same time frame. 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 modestly lower into the close from current levels on rising Eurozone debt angst, less tech sector optimism, rising global growth fears, less US economic optimism, market leader weakness and high energy prices.

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