Broad Market Tone: - Advance/Decline Line: Substantially Lower
- Sector Performance: Every Sector Declining
- Volume: Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst: - VIX 19.53 +13.28%
- ISE Sentiment Index 82.0 -1.20%
- Total Put/Call 1.13 +21.51%
- NYSE Arms 2.82 +172.48%
Credit Investor Angst:- North American Investment Grade CDS Index 116.81 +2.48%
- European Financial Sector CDS Index 276.22 +.35%
- Western Europe Sovereign Debt CDS Index 298.56 -2.07%
- Emerging Market CDS Index 292.22 +4.56%
- 2-Year Swap Spread 25.75 +1.75 basis points
- TED Spread 39.0 +.25 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -53.25 -2.0 basis points
Economic Gauges:- 3-Month T-Bill Yield .08% unch.
- Yield Curve 131.0 -2 basis points
- China Import Iron Ore Spot $137.40/Metric Tonne +.44%
- Citi US Economic Surprise Index -64.80 -5.5 points
- 10-Year TIPS Spread 2.07 -7 basis points
Overseas Futures: - Nikkei Futures: Indicating a -45 open in Japan
- DAX Futures: Indicating -42 open in Germany
Portfolio:
- Slightly Lower: On losses in my tech, medical, biotech and retail sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
- Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 breaks back below its 50-day moving average and trades near session lows on rising Eurozone debt angst, diminished global central bank stimulus hopes, more weak US economic data, tech/commodity sector weakness and rising global growth fears. On the positive side, Airline and Drug shares are holding up relatively well, falling less than -1.0%. Gold is falling -2.5%, the UBS/Bloomberg Ag Spot Index is down -1.6% and Oil is down -3.2%. The Portugal sovereign cds is down -1.8% to 915.05 bps and the Ireland sovereign cds is down -2.2% to 643.98 bps. On the negative side, Coal, Alt Energy, Oil Tanker, Energy, Oil Service, Steel, Software, Computer, Semi, Disk Drive, Networking, I-Banking, Hospital, Construction and Retail shares are under significant pressure, falling more than -3.0%
. Cyclical and small-cap shares have traded poorly throughout the day. Tech shares have also been very heavy. Copper is down -2.6% and Lumber is down -2.9%. Major Asian indices were mostly lower overnight, led down by a -1.3% decline in Hong Kong. Major European indices were modestly lower. The Bloomberg European Bank/Financial Services Index fell -.5%. The Germany sovereign cds is up +1.3% to 101.12 bps, the France sovereign cds is gaining +1.78% to 197.44 bps, the China sovereign cds is up +1.9% to 119.70 bps, the Russia sovereign cds is soaring +5.7% to 234.17 bps, the Brazil sovereign cds is jumping +5.4% to 153.12 bps. As well, the Italian/German 10Y Yld spread is rising +1.5% to 421.36 bps.
Weekly retail sales have decelerated to a sluggish rate at +2.5%. US Rail/Trucking 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 late-Aug. levels. Lumber is -10.0% 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 -55.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -23.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +137.0% ytd.
The CRB Commodities Index is now technically in a bear market, having declined -27.4% since May 2nd of last year.
Overall, credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The tech sector is under pressure today on worries over handset and pc growth. The euro currency, oil, lumber and copper all trade very poorly given global central bank stimulus hopes and recent stock gains. As well, the 10Y continues to trade too well as the yield is falling another -4 bps today to 1.62%.
The AAII % Bulls fell to 32.9 this week, while the % Bears rose to 35.9. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. The Citi Eurozone Economic Surprise Index is falling another -6.0 points to -74.3 points, which is the lowest since early Oct. of last year.
The “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. As well, some key economies in the region are likely accelerating their contractions right now. Moreover,
the European debt crisis is really beginning to bite emerging market economies now, which will also further pressure exports from the region and further raise the odds of more sovereign/bank downgrades.
The "US fiscal cliff "will become more and more of a focus for investors as the year progresses.
Finally, the upcoming earnings season could prove more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. Global central bank stimulus hopes and hopes for a Eurozone fiscal unity "solution" had been propping up stocks, but I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. 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 modestly lower into the close from current levels on rising eurozone debt angst, diminished global central bank stimulus hopes, rising global growth fears, profit-taking, technical selling, tech/commodity sector weakness and more shorting.
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