Wednesday, May 05, 2010

Stocks Falling into Final Hour on Rising Sovereign Debt Fear, Increasing Economic Pessimsim, China Bubble Worries

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Heavy
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 26.71 +12.04%
  • ISE Sentiment Index 68.0 -29.17%
  • Total Put/Call 1.20 +22.45%
  • NYSE Arms .92 -62.13%
Credit Investor Angst:
  • North American Investment Grade CDS Index 103.09 bps +8.47%
  • European Financial Sector CDS Index 134.45 bps +13.57%
  • Western Europe Sovereign Debt CDS Index 143.0 bps +18.18%
  • Emerging Market CDS Index 251.17 bps +8.58%
  • 2-Year Swap Spread 31.0 +1 bp
  • TED Spread 21.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 267.0 +1 bp
  • China Import Iron Ore Spot $175.80/Metric Tonne +1.09%
  • Citi US Economic Surprise Index +13.20 -3.9 points
  • 10-Year TIPS Spread 2.28% -5 bps
Overseas Futures:
  • Nikkei Futures: Indicating -417 open in Japan
  • DAX Futures: Indicating unch. open in Germany
  • Slightly Lower: On Losses in my Biotech, Medical and Tech long positions
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as equities trade near session lows on heavy volume despite more positive US economic data. On the positive side, Education, Retail and HMO stocks are slightly higher on the day. Oil is trading -3.5% lower, back near session lows, as the euro continues to trade as if more losses are in the offing. On the negative side, Homebuilding, Construction, Biotech, Oil Tanker and Alt Energy shares are especially weak today, falling 2.0%+. The Spain sovereign cds is jumping another +5.4% to 212.21 bps, Portugal's sovereign cds is spiking +13.1% to 387.66 bps and Greece's sovereign cds is soaring 17.0% to 894.42 bps. Moreover, the Russian sovereign cds is jumping another 10.0%. Finally, the Euro Region Investment Grade CDS is soaring +17.4% to 97.83 bps. Other key gauges of credit angst are moving further to the upside. The CRB Index is breaking down through its 200-day moving average today and the 10-year continues to trade well. The euro financial sector cds index is trading at the highest level since May 2009. I am surprised the (XLF) is holding up as well as it is given regulatory headwinds and mounting eurozone risks. While US stocks are getting oversold short-term, I sense that many investors are still too complacent regarding the ramifications of what is happening in Europe and China. Asia will likely come under meaningful pressure again tonight, which could lead to further downside in US stocks tomorrow morning. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, tax hike worries, regulatory fears, more financial sector pessimism, growing economic fear and China bubble worries.

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