Friday, July 06, 2012

Stocks Falling into Final Hour on Weak US Jobs Report, Rising Eurozone Debt Angst, Tech Sector Weakness, Earnings Concerns


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.75 +1.43%
  • ISE Sentiment Index 101.0 +18.82%
  • Total Put/Call 1.10 +23.60%
  • NYSE Arms 2.15 +21.47%
Credit Investor Angst:
  • North American Investment Grade CDS Index 108.62 +3.96%
  • European Financial Sector CDS Index 282.92 +5.41%
  • Western Europe Sovereign Debt CDS Index 283.57 +1.2%
  • Emerging Market CDS Index 279.09 +4.47%
  • 2-Year Swap Spread 25.25 +1.0 basis point
  • TED Spread 38.75 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -59.0 +10.25 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 127.0 -3 basis points
  • China Import Iron Ore Spot $135.10/Metric Tonne +.22%
  • Citi US Economic Surprise Index -62.50 -2.3 points
  • 10-Year TIPS Spread 2.07 -3 basis points
Overseas Futures:
  • Nikkei Futures: Indicating -55 open in Japan
  • DAX Futures: Indicating +7 open in Germany
Portfolio:
  • Slightly Lower: On losses in my tech, medical and biotech 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 bearish as the S&P 500 trades lower on surging eurozone debt angst, a plunging euro currency, tech sector weakness, Obamacare/US fiscal cliff worries, weak US economic data, earnings concerns and rising global growth fears. On the positive side, REIT, Education and Airline shares are flat-to-slightly higher on the day. Oil is falling -3.2%, the UBS-Bloomberg Ag Spot Index is -1.1%, Lumber is gaining +1.4% and Gold is down -1.4%. On the negative side, Coal, Alt Energy, Steel, Software, Computer, Semi, Networking, Computer Service, Defense, Internet, Disk Drive and Construction shares are under meaningful pressure, falling more than -1.75%. Cyclicals are underperforming. Tech shares are especially heavy. Copper is down -2.3%. The 10Y Yld is falling -5 bps to 1.55%. The Citi US Economic Surprise Index is falling to -62.5, which is right near the lowest since late-Aug. of last year. The Citi Latin America Economic Surprise Index is picking up downside steam, falling another -.7 point today to -17.9, which is near the weakest since mid-Oct. of last year. Major Asian indices were mostly lower overnight, led down by a -.92% loss in South Korea. Major European indices are falling around -1.75%, led lower by a -3.1% decline in Spain(-5.2% in 5 days and down -21.4% ytd). The Bloomberg European Bank/Financial Services Index is falling -2.3%. Brazil is falling -1.75% today. The Germany sovereign cds is rising +1.6% to 99.05 bps, the France sovereign cds is gaining +.65% to 184.97 bps, the Italy sovereign cds is gaining +3.95% to 515.16 bps, the Spain sovereign cds is jumping +4.7% to 578.20 bps(+8.1% in 5 days), the Portugal sovereign cds is up +4.95% to 850.28 bps, the Russia sovereign cds is up +3.1% to 221.35 bps and the Brazil sovereign cds is gaining +3.8% to 153.08 bps. The The Spain 10y Yld is rising +2.6% to 6.95%(+9.8% in 5 days) and the Italian/German 10Y Yld Spread is rising +2.2% to 469.94 bps(+10.6% in 5 days). Moreover, the European Investment Grade CDS Index is gaining +4.1% to 171.79 bps. US weekly retail sales have decelerated to a sluggish rate at +2.2%, which is the slowest since the week of April 5th of last year. US 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 -4.0% since its March 1st 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 -35.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +135.0% ytd. Oil tanker rates are plunging this week, with the benchmark Middle East-to-US voyage falling -16.7% to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009. The CRB Commodities Index is now technically in a bear market, having declined -22.1% since May 2nd of last year. Spanish and Italian yields are back in the danger zone. The euro currency continues to trade very poorly and is testing its June 1st low. I expect the currency to break meaningfully below this level over the coming weeks and head substantially lower over the intermediate-term. Oil(turned away at downward-sloping 50-day moving average) and Copper(turned away at downward-sloping 200-day moving average) also continue to trade poorly, despite recent bounces. As well, the 10Y continues to trade too well, which remains a red flag. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Key gauges of credit angst are breaking out technically again. The Citi Eurozone Economic Surprise Index is at -74.40 points, which is the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. Moreover, the “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that if implemented will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. The European debt crisis is also 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. While today’s labor report was disappointing, it was probably not bad enough to prompt QE3. The bar for additional QE is likely higher than the Fed is letting on. I continue to believe QE was a huge mistake as it played a large role in the current global slowdown by helping to jack up commodity prices, thus creating significant inflation problems in key emerging market economies. Officials in these economies slammed on the brakes, which cut demand for goods and services from the Eurozone right when they needed that demand the most. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and election outcome uncertainty will likely 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. Stocks that miss earnings estimates are being severely punished despite the obvious headwinds. 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 mixed-to-higher into the close from current levels on short-covering, global central bank stimulus hopes, bargain-hunting and lower energy prices.

1 comment:

farmland investment said...

VIX is up again. A few days ago was a great buying opportunity, but its gone up since then.