BOTTOM LINE: I expect US stocks to finish the week mixed as rising sovereign debt worries, US political concerns and China bubble fears offset lower energy prices, mostly positive earnings reports and falling long-term rates.My trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.
Indices S&P 500 1,073.87 -1.64%
DJIA 10,067.33 -1.04%
NASDAQ 2,147.35 -2.63%
Russell 2000 602.04 -2.44%
Wilshire 5000 10,991.12 -1.71%
Russell 1000 Growth 478.11 -2.03%
Russell 1000 Value 549.59 -1.53%
Morgan Stanley Consumer 654.34 -1.44%
Morgan Stanley Cyclical 783.60 -3.94%
Morgan Stanley Technology 533.78 -3.26%
Transports 3,895.48 -2.74%
Utilities 378.25 -1.49%
MSCI Emerging Markets 38.77 -3.64%
Euro Financial Sector Credit Default Swap Index 81.55 +4.26%
Emerging Markets Credit Default Swap Index 272.57 +1.57%
CMBS Super Senior AAA 10-year Treasury Spread 412.0 +27.0 basis points
M1 Money Supply $1.665 Trillion +.68%
Business Loans 652.40 -1.0%
4-Wk MA of Jobless Claims 456,300 +2.1%
Continuing Claims Unemployment Rate 3.5% unch.
Average 30-year Mortgage Rate 4.98% -1 basis point
Weekly Mortgage Applications 513.0 -10.92%
ABC Consumer Confidence -48 +1 point
Weekly Retail Sales +1.10% unch.
Nationwide Gas $2.69/gallon -.04/gallon
US Heating Demand Next 7 Days 3.0% below normal
Baltic Dry Index 2,963 -6.53%
Oil Tanker Rate(Arabian Gulf to US Gulf Coast) 70.0 -3.45%
BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Medical longs. I added to my (IWM)/(QQQQ) hedges and to my (EEM) short this morning, took some profits in a few longs and sold all of my (QSII) long, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, most sectors are declining and volume is heavy. Investor anxiety is very high. Today’s overall market action is very bearish. The VIX is rising +3.83% and is above-average at 24.61. The ISE Sentiment Index is below average at 125.0 and the total put/call is above average at .94. Finally, the NYSE Arms has been running above average most of the day, hitting 1.25 at its intraday peak, and is currently 1.12. The Euro Financial Sector Credit Default Swap Index is rising +2.79% to 81.54 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling -.59% to 94.78 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is unch. at 18 basis points. The TED spread is now down 445 basis points since its all-time high of 463 basis points on October 10th, 2008. The 2-year swap spread is rising +.53% to 26.75 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +1 basis point to 2.33%, which is down -32 basis points since July 7th, 2008. The 3-month T-Bill is yielding .06%, which is unch. today. Cyclical stocks are underperforming again today. Tech shares are under significant pressure.Education, Disk Drive, Computer, Gold, Coal, Wireless, Semi and Software shares are especially weak, falling 2.5%+. I am still getting technical buy signals on the Euro Financial Sector CDS Index, which is a large negative.China Iron Ore prices fell -4.18% this week and copper is breaking down technically.On the positive side, Paper, Retail, Biotech, Homebuilding, Hospital and Telecom shares are just slightly lower or even higher on the day.(AAPL) has broken the psychologically important $200 level.Given today’s positive economic data and positive earnings reports, the market’s reaction is even more negative than the major averages suggest.As well, given the declines in many market leading stocks, investor angst gauges are registering too much complacency.I will wait to see Asia's reaction to our market on Monday before further shifting market exposure. Nikkei futures indicate a -18 open in Japan and DAX futures indicate a -58 open in Germany on Monday. I expect US stocks to trade mixed-to-lower into the close from current levels on tech sector pessimism, more shorting, euro sovereign debt fears, china bubble worries, technical selling and US political concerns.
- Legislation to rein in the $605 trillion over-the-counter derivatives market contains exemptions that would leave most of the market unregulated, Commodity Futures Trading Commission Chairman Gary Gensler said. Proposals in Congress do little to curb customized contracts while exempting about 60% of standardized transactions that had been delivered today to the American Bar Association’s annual meeting of commodities lawyers in Palm Beach, Florida.
- Governments in the Euro region are ready to bail out Greece, as the country struggles to tackle the European Union’s biggest budget deficit, citing “European sources.” The bailout plan may be implemented by June.There may be risks for the euro without external help to Greece.