Stocks Rising Slightly into Final Hour on Tech Sector Strength, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 15.94 -1.35%
  
• ISE Sentiment Index 129.0 +59.26%
  
• Total Put/Call .83 -3.49%
  
• NYSE Arms .99 -1.12%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 108.17 -.15%
  
• European Financial Sector CDS Index 271.59 bps +.87%
  
• Western Europe Sovereign Debt CDS Index 262.14 -.62%
  
• Emerging Market CDS Index 251.77 -1.21%
  
• 2-Year Swap Spread 23.75 unch.
  
• TED Spread 37.75 +1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -44.5 +1.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% -1 basis point
  
• Yield Curve 130.0 +3 basis point
  
• China Import Iron Ore Spot $128.30/Metric Tonne -2.10%
  
• Citi US Economic Surprise Index -65.30 -4.2 points
  
• 10-Year TIPS Spread 2.11 +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +9 open in Japan
• DAX Futures: Indicating -9 open in Germany
  

Portfolio:

• Higher: On gains in my Retail 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 mildly bullish as the S&P 500 trades slightly higher, despite eurozone debt angst, more financial/homebuilding sector weakness, rising food/energy prices, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Internet, Semi, Disk Drive, Networking, Computer Service and Road & Rail shares are especially strong, rising more than +1.0%. Tech shares have traded well throughout the day. Copper is gaining +1.7%. Major European indices are higher, boosted by a +1.1% gain in Germany. Spanish stocks are not participating in the recent equity rally. The Bloomberg European Bank/Financial Services Index is rising +1.1% today. Brazil is gaining +1.2%. Major Asian indices were mostly higher overnight, led by a +1.7% gain in Hong Kong. Chinese and Japanese shares are slightly lower over the last 5 days. The Germany sovereign cds is down -1.9% to 74.0 bps, the France sovereign cds is down -1.8% to 165.91 bps and the Italy sovereign cds is down -1.3% to 504.67 bps. The Italian/German 10Y Yld Spread is falling -1.9% to 478.36 bps. On the negative side, Coal, Oil Tanker, Telecom, Bank, I-Bank, Biotech, Hospital, HMO, Insurance, Homebuilding, REIT and Airline shares are under pressure, falling more than -.75%. Financial and Homebuilding shares have traded heavy throughout the day. Oil is up +3.0%, Gold is rising +.3% and the UBS-Bloomberg Ag Spot Index is rising another +.9%. The UBS-Bloomerg Ag Spot Index is up +27.5% in about 6 weeks. The 10Y T-Note Yld is rising just +1 bp to 1.51%. The China benchmark Iron/Ore Spot Price Index has broken down again technically, falling -15.9% since April 13th and -30.6% since Sept. 7 of last year. As well, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. US weekly retail sales have decelerated to a sluggish rate at +2.0%, which is the slowest since the week of April 5th of last year. US Trucking Traffic continues to soften. 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 investor perceptions of 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 -29.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +124.0% 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 down -17.2% since May 2nd of last year despite the recent surge in food prices. Spanish and Italian yields are back in the danger zone. Copper, lumber and the euro currency remain in intermediate-term downtrends. The 10Y T-Note continues to trade too well, which remains a big red flag. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. The European Investment Grade CDS Index, European Financial Sector CDS Index, Spain sovereign cds and Italian cds, among others, have given back little of their April/May gains and appear to be consolidating before another push higher. The Citi Eurozone Economic Surprise Index is at -66.80 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. 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. The odds for QE3 are likely meaningfully lower than investors currently perceive as food prices soar and energy prices rebound. If the Fed embarks on another misguided round of QE, the Ag Spot Index should push through its Aug. 31, 2011 all-time high. This would likely also lead to another surge in energy prices as it would spur another bout of rioting in the Middle-East and other emerging markets. As well, it would greatly curtail any emerging markets stimulus plans, in my opinion. It is unlikely the Fed would take this risk ahead of an election, in my opinion. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. The major averages continue to power higher off their recent lows, however the rally remains poor in quality. Volume, breadth, leadership, big volume/gainers are all lacking. There is a growing disconnect between US equity action and the deteriorating macro environment that is eerily similar to last July, in my opinion. The macro likely must begin improving very soon for equities to avoid a similar fate into the fall. 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 food/energy prices, rising global growth fears, more shorting, financial/homebuilding sector weakness and US "fiscal cliff" concerns.