Broad Market Tone: - Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Volume: Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst: - VIX 18.12 +.98%
- ISE Sentiment Index 102.0 +61.90%
- Total Put/Call .99 +2.06%
- NYSE Arms 1.41 +41.09%
Credit Investor Angst:- North American Investment Grade CDS Index 113.10 +1.40%
- European Financial Sector CDS Index 278.38 -.45%
- Western Europe Sovereign Debt CDS Index 274.70 +.72%
- Emerging Market CDS Index 266.31 -.13%
- 2-Year Swap Spread 21.75 -1.75 basis points
- TED Spread 35.75 -.75 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -51.0 +3.5 basis points
Economic Gauges:- 3-Month T-Bill Yield .10% +1 basis point
- Yield Curve 121.0 -4 basis points
- China Import Iron Ore Spot $133.70/Metric Tonne -.22%
- Citi US Economic Surprise Index -61.40 +3.1 points
- 10-Year TIPS Spread 2.05 -3 basis points
Overseas Futures: - Nikkei Futures: Indicating -5 open in Japan
- DAX Futures: Indicating +23 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech sector longs, index hedges and emerging markets shorts
- 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 mildly bearish as the S&P 500 trades off session lows, after testing its 50-day moving average, on eurozone debt angst, tech/financial sector weakness, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Coal, Biotech, Homebuilding and Restaurant shares are especially strong, rising more than +.75%. Lumber is rising +1.4%. The Germany sovereign cds is falling -1.8% to 89.88 bps, the Portugal sovereign cds is down -1.8% to 826.11 bps and the Brazil sovereign cds is down -1.6% to 147.89 bps. On the negative side, Oil Tanker, Computer, Semi, Disk Drive, Networking, Bank, I-Banking, Gaming, Education and Airline shares are under pressure, falling more than -1.25%. Cyclicals are underperforming again. Tech and financial shares are heavy. Copper is down -.5%. The 10Y T-Note Yld is falling another -4 bps to 1.48%. The Citi Latin America Economic Surprise Index is falling another -1.5 points today to -35.20, which is the lowest since early-Aug. of last year. Major Asian indices fell around -1.5% overnight, led down by a -2.24% decline in South Korea(
-4.8% in 5 days). Major European indices fell around -1.25%, led down by a -2.6% decline in Spain(
-4.7% in 5 days). The Bloomberg European Bank/Financial Services Index fell -1.8%.
The Spain sovereign cds is up +1.7% to 568.47 bps, the Italy sovereign cds is gaining +1.4% to 503.43 bps and the China sovereign cds is gaining +1.1% to 114.37 bps. Moreover, the Italian/German 10Y Yld Spread is rising +2.7% to 466.26 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 -3.0% 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 -26.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +134.0% ytd.
Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down 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 -21.2% since May 2nd of last year. Spanish and Italian yields are back in the danger zone. Copper, oil and the euro currency continue to trade poorly and remain in intermediate-term downtrends. The 10Y T-Note continues to trade too well, which remains a big red flag.
The AAII % Bulls fell to 30.2 this week, while the % Bears rose to 34.7. 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 remain technically strong.
The Citi Eurozone Economic Surprise Index is at -74.0 points, which is near 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. I continue to believe the bar for additional QE is likely higher than the Fed is letting on.
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.
It appears to me that European officials are finally trying actively to devalue their currency now and I don't believe the negative implications of this have been priced into commodities/emerging markets. Today's rally off the lows was likely driven by investor expectations that China economic data will beat lowered estimates tonight and US housing optimism on Buffett's comments. I continue to believe housing has just stabilized after the crash and prices will make new lows during the next recession. 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-lower into the close from current levels on eurozone debt angst, earnings worries, rising global growth fears, more shorting, tech/financial sector weakness and US "fiscal cliff" concerns.
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