Tuesday, May 04, 2010

Stocks Falling Sharply into Final Hour on Rising Economic Fear, Increasing Financial Sector Pessimism, China Bubble Worries, Rising Sov Debt Angst

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Heavy
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 24.94 +23.53%
  • ISE Sentiment Index 100.0 -25.93%
  • Total Put/Call .95 +23.38%
  • NYSE Arms 2.23 +134.05%
Credit Investor Angst:
  • North American Investment Grade CDS Index 95.04 bps +5.18%
  • European Financial Sector CDS Index 114.31 bps +9.95%
  • Western Europe Sovereign Debt CDS Index 121.0 bps +5.52%
  • Emerging Market CDS Index 232.71 bps +8.24%
  • 2-Year Swap Spread 30.0 +5 bps
  • TED Spread 20.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .15% -1 bp
  • Yield Curve 266.0 -3 bps
  • China Import Iron Ore Spot $173.90/Metric Tonne +.58%
  • Citi US Economic Surprise Index +17.10 -3.2 points
  • 10-Year TIPS Spread 2.33% -7 bps
Overseas Futures:
  • Nikkei Futures: Indicating -310 open in Japan
  • DAX Futures: Indicating +13 open in Germany
  • Slightly Lower: On Losses in my Financial, Biotech, Medical and Tech long positions
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 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, Drug stocks are holding up relatively well. Oil is finally submitting to the deteriorating fundamentals for most commodities. On the negative side, Airline, Coal, Alt Energy, Oil Tanker, Steel, Paper and Semi shares are especially weak today, falling 4.0%+. The Spain sovereign cds is soaring +28.7% to 210.44 bps and the Portugal sovereign cds is spiking +20.1% to 345.08 bps. Moreover, the UK and Russian sovereign cds are jumping 10.0%. Other key gauges of credit angst are also breaking out to the upside. The CRB Index is close to breaking down through its 200-day moving average. I expect this to happen convincingly over the coming weeks. The 10-year yield is now falling too much and is breaking down technically, despite hedge funds' crowded short position in long-term govt debt. Weekly retail sales rose +2.4% this week, which is down from a +2.7% gain the prior week and down from a +3.9% increase the week of April 6th. I continue to believe the most over-owned global cyclicals are at greatest risk of further substantial declines. Slowing China/European growth, high energy prices, less inventory rebuilding and a slowdown in govt stimuli are going to slow global growth more than most investors anticipate over the coming months, in my opinion. Asia will likely come under meaningful pressure 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, China bubble worries and profit-taking.


Anonymous said...


great blog and appreciate the time you put into it every day, amazing!

My question is: you seem to add to your hedges only on weakness and cut back on your hedges on strength, doesn't this add a heavy cost to your portfolio return? wouldn't it be easier and more profitable to sell out of the money calls on your longs and then have time on your side instead of always chasing strength and weakness and the frequent whips saws? especiatlly with the recent up/down pattern of 1% days?

thanks again.....

Anonymous said...


Anonymous said...


Gary said...

Thanks. I only disclose a small portion of my overall strategy on this blog and I do use options. A portion of my hedges are negatively impacted by short-term extreme volatility, but they work very well for the overall portfolio strategy over the intermediate/long-term.