BETWEEN THE HEDGES

Friday, October 03, 2014

Stocks Surging into Final Hour on US Economic Data, Yen Weakness, Short-Covering, Biotech/Healthcare Sector Strength

Posted by Gary .....at 3:23 PM

Broad Equity Market Tone:

Advance/Decline Line: Substantially Higher

Sector Performance: Most Sectors Rising

Volume: Below Average

Market Leading Stocks: Outperforming

Equity Investor Angst:

Volatility(VIX) 14.49 -10.33%

Euro/Yen Carry Return Index 143.46 +.03%

Emerging Markets Currency Volatility(VXY) 7.81 +.13%

S&P 500 Implied Correlation 51.18 -9.86%

ISE Sentiment Index 74.0 -10.84%

Total Put/Call .92 -8.91%

NYSE Arms .90 +3.07%

Credit Investor Angst:

North American Investment Grade CDS Index 58.87 -6.60%

European Financial Sector CDS Index 58.72 -7.47%

Western Europe Sovereign Debt CDS Index 26.47 -2.54%
Asia Pacific Sovereign Debt CDS Index 70.02 -2.42%

Emerging Market CDS Index 279.36 -.30%

China Blended Corporate Spread Index 319.36 -.1%
2-Year Swap Spread 25.75 -.5 basis point

TED Spread 22.75 +.25 basis point

3-Month EUR/USD Cross-Currency Basis Swap -10.0 -.25 basis point

Economic Gauges:

3-Month T-Bill Yield .01% unch.

Yield Curve 188.0 -2.0 basis points

China Import Iron Ore Spot $77.50/Metric Tonne n/a

Citi US Economic Surprise Index 18.30 +6.9 basis points

Citi Emerging Markets Economic Surprise Index -18.60 +.8 point

10-Year TIPS Spread 1.94 -2.0 basis points

Overseas Futures:

Nikkei Futures: Indicating +282 open in Japan

DAX Futures: Indicating +19 open in Germany

Portfolio:

Higher: On gains in my tech/biotech/medical/retail sector longs

Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

Market Exposure: Moved to 75% Net Long

Today's Headlines

Posted by Gary .....at 3:06 PM

Bloomberg:

EU Warns Putin of New Sanctions If Ukraine Rebels Grab Land. Ukraine’s pro-Russian rebels may be seeking more territorial gains as a month-old cease-fire frays, the European Union’s ambassador in Moscow said, warning that this risks triggering new sanctions against Russia. “The EU wants sanctions to be lifted; however, I do not exclude that if things deteriorate significantly, the EU might be forced to come back and consider sanctions,” Vygaudas Usackas said in an interview today in Moscow. “We have not reached the end of the possible measures.” Daily skirmishes between Ukrainian troops and pro-Russian separatists are threatening to undermine the Sept. 5 cease-fire signed in Minsk. Russian President Vladimir Putin, who said he supports the peace efforts, yesterday shrugged off U.S. and EU sanctions as “idiocy” that harm the global economy but won’t sway his policies. The restrictions have driven Russia’s slowing economy to the brink of recession.
Mob Attacks Hong Kong Protesters as Students Shelve Talks. Hong Kong’s pro-democracy demonstrators were attacked by hundreds of men at two sites in the city, prompting student leaders to shelve talks with the government aimed at ending street protests that engulfed the city for the past week. The city’s embattled leader Leung Chun-ying appealed for calm tonight after the men, who began gathering in the afternoon, tried to remove barricades, shouted abuse and tussled with students. The violence forced protesters to leave some streets they had occupied for the past week, with police escorting them past angry crowds in Mong Kok. At least 37 people were injured, the city’s Hospital Authority said.
Merkel Says She’ll Keep Pressing for Euro-Area Discipline. German Chancellor Angela Merkel said she won’t stop pressing euro-area governments to comply with debt and deficit rules because Europe’s credibility is at stake. Merkel’s comments were a nudge to countries such as France and Italy as the euro region’s two biggest economies after Germany seek to revive growth. She spoke on the anniversary of German reunification in 1990, which ended Europe’s Cold War division and eventually led to the currency union.
Albert Edwards Says Watch Japanese Yen and Be Very Afraid. The Japanese yen goes into freefall. China’s fragile economy tips over the edge. A wave of profit-crushing deflation comes washing over the U.S. and Europe. Investors panic. That’s the view of perennial pessimist Albert Edwards. The London-based analyst and his team at investment bank Societe Generale SA have been ranked No. 1 for global strategy in surveys by Thomson Reuters Extel every year since 2007, even with a history of saying unpleasant things that few want to hear.
Emerging-Market ETF Outflows Exceed $1 Billion Led by China, HK. Investors pulled more than $1 billion from exchange-traded funds that invest in emerging markets in the week ended Oct. 2, led by withdrawals from China and Hong Kong. Redemptions from ETFs that invest across developing nations as well as those that target specific countries totaled $1.27 billion, compared withs inflows of $60.1 million in the previous week, according to data compiled by Bloomberg. Stock funds lost $1.4 billion and bond funds advanced by $95.8 million. The MSCI Emerging Markets Index declined 3.2 percent in the week. The biggest change was in China and Hong Kong, where funds shrank by $278.2 million, compared with $60.9 million of redemptions the previous week. Investors withdrew $278.9 million from stock funds and added $600,000 to bonds.
Emerging-Market Bears Want More as Stocks See Correction. Investors are ramping up bets that the selloff in emerging-market stocks isn’t over after the benchmark index plunged 9.5 percent from a three-year high reached in September. Shares of the $38 billion iShares MSCI Emerging Markets exchange-traded fund being shorted have jumped more than four-fold over the past month to about 44 million, or 4.9 percent of all outstanding securities, near the most since June, according to data compiled by Markit and Bloomberg. The MSCI Emerging Markets Index fell 0.4 percent yesterday to 992.53, the lowest since March 28.
European Stocks Rally as U.S. Jobless Rate Declines. European stocks rebounded from the biggest selloff in 15 months as a U.S. report showed better-than-estimated hiring sent the unemployment rate in the world’s largest economy to a six-year low. EasyJet Plc rallied the most since November after saying full-year pretax profit jumped at least 20 percent. Immofinanz AG advanced 2.5 percent after UniCredit SpA agreed to sell its stake in an Austrian real estate unit to another bidder. Greek stocks fell for a third day, posting the worst performance among markets in western Europe. The Stoxx Europe 600 Index gained 1 percent to 335.19 at the close in London. The equity benchmark yesterday plunged 2.4 percent amid concern the European Central Bank’s asset-buying plan won’t be enough to revive the region’s economy.
OPEC Price War Signaled by Saudi Move Risks Deeper Drop. Saudi Arabia is signaling that it’s ready for a price war with other OPEC members that would deepen oil’s biggest slump in more than two years, according to Commerzbank AG and Citigroup Inc. Saudi Aramco, the state-run oil producer of the world’s biggest exporter, cut prices on Oct. 1 for all its exports, reducing those for Asia to the lowest level since 2008. The move suggests that the biggest member of the Organization of Petroleum Exporting Countries is prepared to let prices fall rather than cede market share by paring output to clear a supply surplus, according to Commerzbank.
Secret Leveraging of Junk Bonds Revealed in Stock Trade. If stock investors are any guide, the $1.3 trillion U.S. junk-bond market is being inflated by a growing amount of leverage being used by buyers. Both stock and junk-bond managers tend to deploy more leverage when markets are booming, and more than ever is being used to purchase U.S. equities, based on levels of margin debt on the New York Stock Exchange, according to UBS AG (UBSN) analysts. That suggests junk-debt buyers are engaging in similar financing activities. As investors use more borrowed cash, they increase the potential for bigger losses in a downturn. This trend adds to concern that six years of unprecedented Federal Reserve stimulus has produced a bubble in the junk-bond market -- and one that will be all the more painful when it eventually pops. “Rising debt levels will be a problem going forward,” UBS analysts Stephen Caprio and Matthew Mish wrote in a report dated Oct. 2. Investors increase “leverage to meet return hurdles that are more challenging to hit as prices rise.” Measuring leverage in the junk bond market with any kind of precision is a tricky thing.

Wall Street Journal:

Hilsenrath Analysis: Jobs Report Keeps Early Rate Hike On Table, Tough Communication Decision For Fed.

Fox News:

Could Ebola virus become ‘bioterrorist threat’?

CNBC:

ZeroHedge:

Bear Radar

Posted by Gary .....at 2:14 PM

Style Underperformer:

Small-Cap Value +.61%

Sector Underperformers:

1) Gold & Silver -3.77% 2) Coal -2.35% 3) Oil Service -.77%

Stocks Falling on Unusual Volume:

LGCY, SYT, TX, ADTN, AGU, GOLD, BBL, BHP, WBMD, ADHD, NE, RIG, TS, CREE, SCG, PAAS, RIO, LYB, UGLD, SLCA, AEM, TGP, GG, PKE, NEM and FEYE

Stocks With Unusual Put Option Activity:

1) IDTI 2) EWJ 3) TER 4) PSX 5) IBM

Stocks With Most Negative News Mentions:

1) DVN 2) PKE 3) FEYE 4) CREE 5) VALE

Charts:

ETFs Falling on Unusual Volume

Stocks Falling on Unusual Volume

Bull Radar

Posted by Gary .....at 11:24 AM

Style Outperformer:

Small-Cap Growth +1.32%

Sector Outperformers:

1) Airlines +2.75% 2) Biotech +2.21% 3) HMOs +1.78%

Stocks Rising on Unusual Volume:

RMTI, BCRX, COV, MDT, PANW, MYL, VDSI, TKMR, VDSI, SPLK, TRUE, JBLU, TWTR, DAL, KERX and AAL

Stocks With Unusual Call Option Activity:

1) PTEN 2) SLXP 3) UUP 4) FL 5) HRB

Stocks With Most Positive News Mentions:

1) WAG 2) CME 3) MYL 4) WMT 5) MDT

Charts:

ETFs Rising on Unusual Volume

Stocks Rising on Unusual Volume

Friday Watch

Posted by Gary .....at 12:05 AM

Evening Recommendations
Deutsche Bank:

Cut (AAPL) to Hold, target $102.

Night Trading

Asian equity indices are -.75% to +.50% on average.

Asia Ex-Japan Investment Grade CDS Index 98.0 -1.0 basis point.

Asia Pacific Sovereign CDS Index 71.75 +.25 basis point.

FTSE-100 futures +.39%.

S&P 500 futures +.20%.

NASDAQ 100 futures +.23%.

Morning Preview Links

Earnings of Note
Company/Estimate

None of note

Economic Releases
8:30 am EST

The Trade Deficit for August is estimated at -$40.8B versus -$40.5B in July.

The Change in Non-Farm Payrolls for September is estimated at 215K versus 142K in August.

The Unemployment Rate for September is estimated at 6.1% versus 6.1% in August.

Average Hourly Earnings for September are estimated to rise +.2% versus a +.2% gain in August.

9:45 am EST

Final US Services PMI for September is estimated at 58.5 versus a prior estimate of 58.5.

10:00 am EST

ISM Non-Manufacturing for September is estimated to fall to 58.5 versus 59.6 in August.

Upcoming Splits

None of note

Other Potential Market Movers

The Eurozone Services PMI could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Thursday, October 02, 2014

Stocks Reversing Slightly Higher into Final Hour on Less Emerging Markets Debt Angst, Short-Covering, Bargain-Hunting, Retail/Homebuilding Sector Strength

Posted by Gary .....at 3:02 PM