Broad Market Tone: - Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Volume: Below Average
- Market Leading Stocks: Outperforming
Equity Investor Angst: - VIX 22.58 -10.04%
- ISE Sentiment Index 99.0 +3.13%
- Total Put/Call .92 -32.35%
- NYSE Arms 1.10 +41.38%
Credit Investor Angst:- North American Investment Grade CDS Index 120.87 -2.05%
- European Financial Sector CDS Index 298.05 -3.36%
- Western Europe Sovereign Debt CDS Index 316.20 +1.63%
- Emerging Market CDS Index 303.55 -3.27%
- 2-Year Swap Spread 35.25 -1.5 basis point
- TED Spread 39.50 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -50.75 +1.75 basis points
Economic Gauges:- 3-Month T-Bill Yield .07% -1 basis point
- Yield Curve 144.0 +3 basis points
- China Import Iron Ore Spot $130.90/Metric Tonne -.30%
- Citi US Economic Surprise Index -25.30 -.2 point
- 10-Year TIPS Spread 2.17 +4 basis points
Overseas Futures: - Nikkei Futures: Indicating a +58 open in Japan
- DAX Futures: Indicating +12 open in Germany
Portfolio:
- Higher: On gains in my Biotech, Retail, Medical and Tech 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 bullish as the S&P 500 trades near session highs despite Eurozone debt angst, a "disappointing" (FB) debut, financial sector underperformance, rising energy prices and rising global growth fears. On the positive side, Coal, Oil Tanker, Oil Service, Computer, Disk Drive, HMO and Road & Rail shares are especially strong, rising more than +2.25%. Transport and Tech shares have traded well throughout the day. Copper is rising +.9%. Major Asian indices were mostly higher, led by a +.94% gain in South Korea. Despite more China stimulus speculation, Hong Kong fell another -.16% and is down -4.1% in 5 days(-10.7% in less than 3 weeks). Major European indices are mixed as a +.95% gain in Germany is being offset by a -.65% decline in Spain. Spain is now down -4.2% in 5 days and down -23.8% ytd, which remains a huge red flag for the broad market as the index is unable to even bounce. The Bloomberg European Bank/Financial Services Index is rising +1.1% today, but is still down -5.8% in 5 days(-23.9% in about 2 months).The Brazil sovereign cds is falling -2.9% to 150.96 bps and the European Investment Grade CDS Index is dropping -1.3% to 180.39 bps. On the negative side, Utility, Bank, Drug and Insurance
shares are just slightly higher on the day. The financials have underperformed throughout the day. Oil is gaining +1.7%, Lumber is falling -.3% and the UBS-Bloomberg Ag Spot Index is gaining +.3%. The Spain sovereign cds is gaining +.84% to 560.0 bps. The UK sovereign cds is gaining +1.8% to 75.17 bps. The Ireland sovereign cds is gaining +2.1% to 721.87 bps(+14.7% in 5 days). The Portugal sovereign cds is rising +1.3% to 1,236.56 bps(
+12.2% in 5 days). The Japan sovereign cds is gaining +1.3% to 110.92 bps. The US sovereign cds is jumping +4.5% to 46.50 bps(
+12.9% in 5 days).
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 -4.0% 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 -28.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +356.0% ytd.
The CRB Commodities Index is now technically in a bear market, having declined -21.3% since May 2nd of last year.
Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong despite today's mixed performance. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. While the weak post-ipo performance of (FB) is damaging to investor psychology,
(JPM) concerns are likely much more important. (JPM) continues to trade very poorly amid rising worries about the risks the bank has taken on over the last few years. US stocks are bouncing after last week’s outsized losses, however the quality of the rally is lacking so far. There are few big-volume/gainers and the devastated commodity-related stocks are leading. The 10Y T-Note isn’t selling off at all and the euro can’t gain upside traction. However, tech stocks are trading well given (FB) weakness. As I speculated last week, it appears as though a portion of market-leader (AAPL)’s recent losses were directly related to the (FB) IPO. Long AAPL. While stocks were very oversold and may bounce further in the shot-term, there is still too much uncertainty on the horizon to conclude a durable low is in place, in my opinion. I still don’t hear any viable “solutions” to the European debt crisis and
it is really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades.
As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a 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 mixed-to-lower into the close from current levels on Eurozone debt angst, rising global growth fears, a "disappointing" (FB) debut, rising energy prices and less financial sector optimism.
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