Friday, May 07, 2010

Stocks Sharply Lower into Final Hour With Heavy Volume on Rising Sovereign Debt Fear, China Bubble Concerns and More Shorting

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Very Heavy
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 37.90 +15.55%
  • ISE Sentiment Index 56.0 -12.50%
  • Total Put/Call 1.19 +17.82%
  • NYSE Arms 2.35 +76.48%
Credit Investor Angst:
  • North American Investment Grade CDS Index 129.81 bps +16.11%
  • European Financial Sector CDS Index 171.91 bps +7.07%
  • Western Europe Sovereign Debt CDS Index 162.66 bps +12.18%
  • Emerging Market CDS Index 293.01 bps +2.55%
  • 2-Year Swap Spread 38.0 +1 bp
  • TED Spread 31.0 +4 bps
Economic Gauges:
  • 3-Month T-Bill Yield .12% +3 bps
  • Yield Curve 261.0 +1 bp
  • China Import Iron Ore Spot $175.0/Metric Tonne -.4%
  • Citi US Economic Surprise Index +11.50 -1.7 points
  • 10-Year TIPS Spread 2.15% -1 bp
Overseas Futures:
  • Nikkei Futures: Indicating -169 open in Japan
  • DAX Futures: Indicating +4 open in Germany
  • Slightly Lower: On Losses in my Biotech, Retail, Medical and Tech long positions
  • Disclosed Trades: Added to my (IWM), (QQQQ) hedges, then covered them
  • 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 and a rebound in the euro. On the positive side, Ag, Utility, Telecom, Airline and Food stocks are down less than 1.0%. Oil is trading -2.1% lower, back near session lows, notwithstanding a short-covering rally in the euro. The Spain sovereign cds is falling -9.8% to 241.08 bps. On the negative side, Gaming, Homebuilding, Construction, HMO, Biotech, Networking, Disk Drive, Oil Tanker, Oil Service, Internet, Software and Computer shares are especially weak today, falling 3.0%+. Greece's sovereign cds is rising another +4.7% to 1,004.80 bps and the Russian sovereign cds is jumping another +6.4% to 219.75 bps. Finally, the Euro Region Investment Grade CDS is soaring +17.0% to 127.33 bps and the North Amer. Investment Grade CDS Index is jumping +16.0% to 129.81. Other key gauges of credit angst are moving further to the upside. The euro financial sector cds index is trading at a record high, which is surprising and a big negative. So far, the (XLF) is holding up relatively well. US stocks are oversold short-term and angst has risen significantly over the last few days, which could result in a meaningful bounce at any time. However, given the magnitude of the headwinds, further weakness is likely over the coming weeks. 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, rising sovereign debt angst and China bubble worries.

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