Wednesday, May 26, 2010

Stocks Reversing Lower into Final Hour on Rising Sovereign Debt Angst, Technical Selling, More Shorting, North Korea Worries

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Above Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 32.91 -4.91%
  • ISE Sentiment Index 103.0 +10.75%
  • Total Put/Call .99 -13.16%
  • NYSE Arms 1.06 +74.26%
Credit Investor Angst:
  • North American Investment Grade CDS Index 121.13 bps -5.94%
  • European Financial Sector CDS Index 158.10 bps -.25%
  • Western Europe Sovereign Debt CDS Index 147.33 bps +1.96%
  • Emerging Market CDS Index 292.05 bps -5.06%
  • 2-Year Swap Spread 46.0 -8 bps
  • TED Spread 38.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .16% +1 bp
  • Yield Curve 238.0 -2 bps
  • China Import Iron Ore Spot $142.70/Metric Tonne -.56%
  • Citi US Economic Surprise Index +30.30 +5.3 points
  • 10-Year TIPS Spread 1.96% +7 bps
Overseas Futures:
  • Nikkei Futures: Indicating -12 open in Japan
  • DAX Futures: Indicating -5 open in Germany
  • Slightly Higher: On gains in my Medical and Retail long positions
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and added to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 reverses morning gains on good volume despite mostly positive economic data and overseas stock gains. On the positive side, Airline, Road&Rail, HMO and Oil Tanker stocks are strongly outperforming, rising 1.5%+. Small-cap shares are also strongly outperforming. The Spain sovereign cds is falling -7.97% to 225.43 bps. On the negative side, Education, Telecom, Software, Retail, Restaurant, Drug, Biotech and Networking shares are especially weak, falling 1.0%+. The rise in the Western Europe sovereign debt cds index, despite this morning's equity rally, was a large negative. As well, the Japan sovereign cds is rising +8.4% today to 98.17 bps and the euro financial sector cds index is slightly higher. (MSFT) is breaking down further on heavy volume, which is another headwind for the NASDAQ. I expect to see Asian shares come under pressure tonight after our reversal lower this afternoon. I expect US stocks to trade mixed-to-lower into the close from current levels on another disorderly decline in the euro, North Korea worries, more shorting, technical selling, tax hike worries and regulatory concerns.

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