Wednesday, March 24, 2010

Stocks Lower into Final Hour on Rising Rates, Sovereign Debt Worries, Profit-Taking

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: About Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 17.59 +7.58%
  • ISE Sentiment Index 170.0 +26.87%
  • Total Put/Call .91 +22.97%
  • NYSE Arms .69 -10.88%
Credit Investor Angst:
  • North American Investment Grade CDS Index 87.41 bps -.44%
  • European Financial Sector CDS Index 72.04 bps -6.56%
  • Western Europe Sovereign Debt CDS Index 75.35 bps +1.03%
  • Emerging Market CDS Index 225.29 bps +2.47%
  • 2-Year Swap Spread 11.0 bps -6.0 bps
  • TED Spread 15.0 -1.0 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% +1 bp
  • Yield Curve 273.0 bps +3 bp
  • Copper Days Demand n/a
  • Citi US Economic Surprise Index +40.70 -.8 point
  • 10-Year TIPS Spread 2.25% +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating -10 open in Japan
  • DAX Futures: Indicating +3 open in Germany
  • Slightly Lower: On weakness in my Retail, Biotech and Tech long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the major averages remain somewhat resilient given recent headwinds. On the positive side, Coal, REIT, Bank and Gaming stocks are all higher on the day. (XLF) has traded well throughout the day. The euro remains under pressure and looks poised for further near-term and longer-term deterioration, which should help contain inflation expectations. On the negative side, Healthcare, Semi and Gold shares are under meaningful pressure. Gauges of investor angst are muted. While the 14 bp surge in the 10-year yield is a mild negative, I would not become concerned until a convincing breach above 4.0% and today's move is likely more related to the positive durable goods report rather than supply worries. Investors are still mostly ignoring negative US economic data on the belief that any weakness is weather-related. Another spike in euro sovereign debt fear, China trade tensions or a temporary surge in the 10-year yield are the most likely near-term potential negative catalysts. One of my longs, (GOOG), is reversing higher into the afternoon on volume. I suspect another meaningful low is in place for the shares after the recent overreaction to its Chinese pullout. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, declining financial sector pessimism, less economic fear and technical buying.

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