Broad Market Tone: - Advance/Decline Line: Substantially Lower
- Sector Performance: Almost Every Sector Declining
- Volume: Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst: - VIX 21.55 +8.59%
- ISE Sentiment Index 75.0 -1.88%
- Total Put/Call 1.30 +4.84%
- NYSE Arms 1.06 -18.04%
Credit Investor Angst:- North American Investment Grade CDS Index 114.15 +5.13%
- European Financial Sector CDS Index 280.55 +5.78%
- Western Europe Sovereign Debt CDS Index 293.57 +2.83%
- Emerging Market CDS Index 286.52 +6.38%
- 2-Year Swap Spread 38.0 +4.0 basis points
- TED Spread 38.0 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -48.0 -3.0 basis points
Economic Gauges:- 3-Month T-Bill Yield .09% unch.
- Yield Curve 152.0 -6 basis points
- China Import Iron Ore Spot $136.70/Metric Tonne -.65%
- Citi US Economic Surprise Index -23.40 +.9 point
- 10-Year TIPS Spread 2.14 unch.
Overseas Futures: - Nikkei Futures: Indicating a -101 open in Japan
- DAX Futures: Indicating -20 open in Germany
Portfolio:
- Slightly Lower: On losses in my Tech, Retail, Medical and Biotech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
- Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows and is testing its early-March low on rising Eurozone debt angst, less financial sector optimism, high energy prices, rising global growth fears, technical selling and more shorting. On the positive side, Disk Drive and Education shares are rising on the day. Oil is falling -1.5%, the UBS-Bloomberg Ag Spot Index is down -.4%, Lumber is gaining +.3% and Gold is down -1.3%. On the negative side, Steel, Bank, I-Banking, Alt Energy, Oil Tanker, Energy, Oil Service, Ag, Paper, Construction, Homebuilding and Gaming
shares are under significant pressure, falling more than -1.75%. Cyclical and small-cap shares are underperforming. Financial shares have also lagged throughout the day. Copper is down -3.5%. Major Asian indices were mostly lower, led down by a -1.15% decline in Hong Kong despite the China RRR cut. Major European indices are falling around -2.5%, led lower by a -3.2% decline in Italy. Italy is now down -10.3% ytd and down -20.7% in less than 2 months. As well, Spain is down another -3.1% today.
The IBEX is down -20.9% ytd and just 81 points away from its March 2009 low. The Bloomberg European Bank/Financial Services Index is down -3.2% today and down -20.0% in less than 2 months.
The Germany sovereign cds is surging +6.2% to 93.50 bps, the France sovereign cds is rising 4.0% to 215.33 bps, the Spain sovereign cds is rising +3.4% to 535.0 bps(all-time high), the Italy sovereign cds is rising +5.7% to 485.34 bps, the Ireland sovereign cds is gaining +6.0% to 630.67 bps, the Brazil sovereign cds is surging +6.5% to 140.59 bps, the Russia sovereign cds is soaring +8.9% to 226.84 bps, the China sovereign cds is gaining +3.3% to 122.63 bps and the US sovereign cds is gaining +3.2% to 42.11 bps. Moreover, the European Investment Grade CDS Index is rising +6.7% to 168.64 bps and the Italian/German 10Y Yld Spread is gaining +6.2% to 424.01 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.
Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -3.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. 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 -30.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +515.0% ytd. The Citi Eurozone Economic Surprise Index is falling another -6.2 points today to -42.10 points, which is the worst reading since mid-Nov.
The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades.
Overall, recent credit gauge deterioration is a big worry with most key sovereign cds breaking out technically. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Moreover, the 10Y T-Note continues to trade too well, with the yield only 10 bps from its record low of 1.67%. The T-Note is technically extended and the yield is at the lower-end of the range it has been in since Sept. However, I continue to believe the T-Note yield will move significantly lower over the intermediate-term during the next US recession. Copper continues to trade poorly and is breaking down from the range it has been trapped in since Jan.
The CRB Commodities Index is gapping down below the trading range it has been in since Oct. 2010.
This index is now technically in a bear market, having declined -21.7% since May 2nd of last year. Moreover, the euro currency continues to trade poorly and is moving towards its Jan. low. I do not expect this low to hold over the coming months. It is looking increasingly likely that another intense escalation phase of the European debt crisis has already begun.
I currently do not hear any “solutions” to the crisis that will prove anything other than very painful for the region’s economies and thus the global economy 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, a US "fiscal cliff" solution 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, rising global growth fears, more shorting, technical selling and less financial sector optimism.
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