Monday, May 17, 2010

Stocks Reversing Morning Losses This Afternoon on Short-Covering, Lower Energy Prices, Bargain-Hunting

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Above Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 31.99 +2.34%
  • ISE Sentiment Index 112.0 +36.59%
  • Total Put/Call 1.03 -7.21%
  • NYSE Arms 1.07 -65.34%
Credit Investor Angst:
  • North American Investment Grade CDS Index 110.38 bps +1.87%
  • European Financial Sector CDS Index 141.29 bps +9.33%
  • Western Europe Sovereign Debt CDS Index 115.17 bps +.88%
  • Emerging Market CDS Index 256.0 bps +1.95%
  • 2-Year Swap Spread 35.0 unch.
  • TED Spread 31.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 269.0 +4 bps
  • China Import Iron Ore Spot $163.30/Metric Tonne -1.98%
  • Citi US Economic Surprise Index +21.60 +7.3 points
  • 10-Year TIPS Spread 2.19% -3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +25 open in Japan
  • DAX Futures: Indicating +37 open in Germany
  • Slightly Lower: On losses in my Technology long positions
  • Disclosed Trades: Added to my (IWM), (QQQQ) hedges and then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as equities trade near session highs despite concerns over China and rising sovereign debt angst. On the positive side, Semi, Telecom, Hospital, Restaurant, Education and Food stocks are rising today. Oil is lower again on rising supply and worries over Chinese demand. I continue to believe lower energy prices and mortgage rates should help the US economy to offset some of the weakness coming from overseas slowdowns. The Spain sovereign cds is falling -1.25% to 177.25 bps. On the negative side, Paper, Steel, Gold, Oil Service, Energy, Oil Tanker, Alt Energy and Coal shares are under meaningful pressure, falling 2.0%+. The eurozone investment grade cds index is jumping another +11.3% today to 108.17 bps. As well, the Portugal sovereign cds is soaring +14.4% to 271.90 bps, the Greece sovereign cds is jumping +9.6% to 673.36 bps and the Japan sovereign cds is jumping +5.0% to 81.65 bps. Most other gauges of credit angst are also rising. Singapore electronics exports rose +19.3% YoY in April, which was down from a +39.4% gain in March and the slowest growth since November of last year. Commodity-related stocks are bearing the brunt of the selling today, with many falling 2-4%. The Shanghai Composite's -5.07% decline overnight is resulting in further demand concerns. While oversold short-term, I still expect the most cyclical global companies to underperform over the longer-term. As for the broad market, today's euro stabilization and slight gain in the DAX is likely resulting in this afternoon's significant reversal. If Asia stabilizes tonight, this rally could gain steam. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and lower energy prices.

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