North American Investment Grade CDS Index 112.26 bps -1.58%
European Financial Sector CDS Index 131.53 bps +3.61%
Western Europe Sovereign Debt CDS Index 152.66 bps +.98%
Emerging Market CDS Index 254.92 bps +3.09%
2-Year Swap Spread 16.0 -3 bps
TED Spread 15.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 198.0 -2 bps
China Import Iron Ore Spot $143.70/Metric Tonne -1.24%
Citi US Economic Surprise Index -62.80 +1.5 points
10-Year TIPS Spread 1.57% +2 bps
Overseas Futures:
Nikkei Futures: Indicating -71 open in Japan
DAX Futures: Indicating -37 open in Germany
Portfolio:
Slightly Lower: On losses in my Tech and Biotech long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges and added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 reverses lower despite gains in European equities, a bounce in the euro and a decline in initial jobless claims. On the positive side, Road & Rail, Oil Tanker, Defense, Gold, Restaurant, Education and Ag stocks are rising on the day. The AAII % Bulls plunged to 20.7% this week, while the % Bears jumped to 49.5, which is a big positive. Copper is rising +2.55% and the S&P GSCI Ag Spot Index is gaining +1.11%. On the negative side, Homebuilding, Hospital, I-Banking, Disk Drive, Semi and Coal shares are under pressure, falling more than 1.5%. The Portugal sovereign cds is rising +4.73% to 328.24 bps and the Japan sovereign cds is gaining +3.05% to 67.37 bps. The 10-year yield is falling -5 bps to session lows. The ongoing rise in the European Financial Sector CDS Index remains a big concern. Today's action is especially disappointing for the bulls given yesterday's reversal higher and today's news, however volume was anemic on today's reversal lower. Uncertainty over the content of Bernanke's speech tomorrow is high. I will closely monitor the euro's reaction to his remarks before further shifting market exposure. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, less economic fear and buyout speculation.
Rated (CREE) Overweight, target $75. We forecast 50+% annual growth rates. CREE is 34% below its 52-week high; we believe the sell-off is overdone as our channel checks indicate the demand remains strong.
Night Trading
Asian equity indices are +.25% to +.75% on average.
Asia Ex-Japan Investment Grade CDS Index 130.0 unch.
Asia Pacific Sovereign CDS Index 123.0 +2.75 basis points.
Initial Jobless Claims for last week are estimated to fall to 490K versus 500K the prior week.
Continuing Claims are estimated to rise to 4495K versus 4478K prior.
Upcoming Splits
None of note
Other Potential Market Movers
The 2Q Mortgage Delinquencies report, 2Q MBA Mortgage Foreclosures report, RPX Composite Index for June, $29 Billion 5-Year Treasury Notes auction, (FLR) analyst meeting and the EnerCom Oil & Gas Conference could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 114.06 bps +1.78%
European Financial Sector CDS Index 128.02 bps +3.61%
Western Europe Sovereign Debt CDS Index 150.33 bps +3.83%
Emerging Market CDS Index 241.90 bps +1.05%
2-Year Swap Spread 19.0 +1 bp
TED Spread 15.0 -1 bp
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 200.0 -2 bps
China Import Iron Ore Spot $147.40/Metric Tonne -1.29%
Citi US Economic Surprise Index -64.30 -6.5 points
10-Year TIPS Spread 1.55% +4 bps
Overseas Futures:
Nikkei Futures: Indicating +45 open in Japan
DAX Futures: Indicating +23 open in Germany
Portfolio:
Higher: On gains in my Medical, Biotech, Retail and Tech long positions
Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 reverses higher to session highs despite very poor economic data, meaningful weakness in overseas equities, euro weakness and sovereign debt worries. On the positive side, Education, REIT, Homebuilding, HMO, Hospital and Gold stocks are especially strong, rising 2%+. Small-caps are outperforming. A number of market leaders made key technical reversals today. Given recent housing data, the moves higher in (XHB) and (IYR) are noteworthy once again. (BAC), (WFC) and (C), which have been a focus of the bears, are trying to reverse into positive territory. Moreover, despite today's data the 10-year yield has reversed +11 bps higher to 2.54%. Equity investor angst is still pretty high with the total put/call ratio opening at 1.36 this morning. The TED and Libor-OIS spreads continue to drop significantly. On the negative side, Airline, Coal, Oil Service and Ag shares are weak, falling more than 1.0%. The European Investment Grade CDS Index is rising +3.38% to 110.42 bps. The Spain sovereign cds is rising +4.22% to 241.02 bps, the Ireland sovereign cds is gaining +7.77% to 320.91 bps and the Russia sovereign cds is rising +4.83% to 180.22 bps. Given recent stock declines and higher levels of investor angst, I suspect a poor jobless claims report tomorrow and weak revised 2Q GDP report on Friday won't surprise investors. However, overseas shares need to stabilize and key cds indices should begin to roll over again before any sustained US stock rally can occur, in my opinion. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, technical buying, less real estate sector pessimism and buyout speculation.
