Friday, May 14, 2010

Stocks Sharply Lower into Final Hour on Rising Financial Sector Pessimism, Increasing Economic Fear, Tax Hike Worries, Regulatory Concerns

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Above Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 32.66 +22.41%
  • ISE Sentiment Index 80.0 -24.53%
  • Total Put/Call 1.15 +33.72%
  • NYSE Arms 1.36 +59.15%
Credit Investor Angst:
  • North American Investment Grade CDS Index 108.35 bps +9.47%
  • European Financial Sector CDS Index 134.13 bps +16.66%
  • Western Europe Sovereign Debt CDS Index 114.17 bps +7.03%
  • Emerging Market CDS Index 249.93 bps +5.54%
  • 2-Year Swap Spread 35.0 +5 bps
  • TED Spread 30.0 +2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 265.0 -6 bp
  • China Import Iron Ore Spot $166.60/Metric Tonne -1.71%
  • Citi US Economic Surprise Index +14.30 +.4 point
  • 10-Year TIPS Spread 2.22% -8 bps
Overseas Futures:
  • Nikkei Futures: Indicating -252 open in Japan
  • DAX Futures: Indicating +15 open in Germany
  • Slightly Lower: On losses in my Biotech, Medical and Technology long positions
  • Disclosed Trades: Covered some of my (IWM), (QQQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as equities trade near session lows this afternoon on good volume despite positive economic reports. On the positive side, HMO and Gold stocks are outperforming, falling less than -1.0%. Oil is lower again on more euro weakness, rising supply and worries over China demand. Lower energy prices and mortgage rates should help the US economy offset some of the weakness coming from overseas slowdowns. On the negative side, REIT, Construction, Bank, Steel, Alt Energy, Education, Homebuilding, Networking, Semi, Paper, Oil Service and Coal shares are under meaningful pressure, falling 3.0%+. The eurozone investment grade cds index is jumping another +15.47% today to 101.75 bps. As well, the Spain sovereign cds is jumping +10.8% to 167.93 bps, the Portugal sovereign cds is soaring +17.8% to 2234.76 bps and the Russia sovereign cds is surging 11.0% to 162.86 bps. Other gauges of credit angst are also meaningfully higher. Today, decline was a bit too orderly for my liking, however gauges of investor angst are surging meaningfully again, which is a large positive. Asian shares will likely come under significant pressure on Sunday night and I will closely monitor our market's open Monday morning before further shifting market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, rising financial sector pessimism, more regulatory worries, tax hike concerns, increasing sovereign debt angst, china bubble worries, rising economic fear and technical selling.

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