Thursday, March 25, 2010

Stocks Reversing into Final Hour on Profit-Taking, Euro Worries, China Bubble/Trade Fears

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Mixed
  • Volume: Above Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 17.61 +.34%
  • ISE Sentiment Index 115.0 -25.81%
  • Total Put/Call .82 -10.87%
  • NYSE Arms .95 +40.02%
Credit Investor Angst:
  • North American Investment Grade CDS Index 86.27 bps -1.30%
  • European Financial Sector CDS Index 78.33 bps +8.70%
  • Western Europe Sovereign Debt CDS Index 75.32 bps -.12%
  • Emerging Market CDS Index 228.27 bps +1.11%
  • 2-Year Swap Spread 12.0 bps +1.0 bp
  • TED Spread 16.0 +1.0 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% unch.
  • Yield Curve 279.0 bps +6 bps
  • Copper Days Demand n/a
  • Citi US Economic Surprise Index +40.80 +.1 point
  • 10-Year TIPS Spread 2.26% +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +92 open in Japan
  • DAX Futures: Indicating -8 open in Germany
  • Slightly Higher: On gains in my Retail, Financial, Tech long positions and Commodity short positions
  • Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as stocks move to session lows with some sectors seeing notable weakness. On the positive side, Retail, REIT, Internet and Software stocks are especially strong, rising +1.0%+. The euro continues to trade very poorly and is weighing on commodity stocks. I suspect oil, which has mostly ignored euro weakness, will trade lower over the coming days as large speculators cut their recently increased long exposure to the commodity. On the negative side, Disk Drive, Computer, Steel, Oil Service, Energy, Oil Tanker, Coal and Paper shares are under meaningful pressure, falling more than 1%. Gauges of investor angst are relatively muted again today. The euro financial sector cds is seeing a meaningful surge today, which is always a large negative. The Shanghai Composite fell -1.23% last night despite gains in most of the rest of Asia and is very close to another technical breakdown. Given recent stock gains and developing headwinds, I wouldn't be surprised to see short-term traders continue to take profits to protect performance into quarter-end. I expect US stocks to trade modestly lower into the close from current levels on profit-taking, euro worries, rising long-term rates, tax hike fears, technical selling and China bubble/trade concerns.

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