Wednesday, May 12, 2010

Stocks Surging into Final Hour on Less Economic Fear, Declining Sovereign Debt Angst, Short-Covering, Bargain-Hunting

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Every Sector Rising
  • Volume: Around Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 25.34 -10.56%
  • ISE Sentiment Index 115.0 +3.60%
  • Total Put/Call .85 -22.02%
  • NYSE Arms .94 -48.58%
Credit Investor Angst:
  • North American Investment Grade CDS Index 97.19 bps -6.44%
  • European Financial Sector CDS Index 111.50 bps -3.64%
  • Western Europe Sovereign Debt CDS Index 109.83 bps -8.73%
  • Emerging Market CDS Index 232.59 bps -4.44%
  • 2-Year Swap Spread 27.0 -4 bps
  • TED Spread 28.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 270.0 +1 bp
  • China Import Iron Ore Spot $171.60/Metric Tonne -2.11%
  • Citi US Economic Surprise Index +14.40 unch.
  • 10-Year TIPS Spread 2.32% +6 bps
Overseas Futures:
  • Nikkei Futures: Indicating +171 open in Japan
  • DAX Futures: Indicating +28 open in Germany
  • Higher: On gains in my Biotech, Retail, Technology and Medical long positions
  • Disclosed Trades: Covered all of my (IWM), (QQQQ) hedges and then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish as equities trade near session highs despite more euro weakness and China bubble fears. On the positive side, Airline, Gaming, Construction, Computer Service, Alt Energy and Coal stocks are especially strong, rising 3.0%+. Small-Caps are substantially outperforming again and cyclicals are also relatively strong. Despite today's outsized equity gains, some gauges of investor angst are relatively high, which is also a positive. The Spain sovereign cds is plunging -13.9% to 141.5 bps and the Portugal sovereign cds is dropping -10.52% to 211.97 bps. Oil is flat on euro weakness, rising supply and worries over China demand. On the negative side, Retail, Drug, I-Banking, Telecom, Oil Service, Utility and Oil Tanker shares are underperforming today. Some gauges of credit angst are still grinding higher. I still believe it is likely that the euro and Shanghai Composite need to stabilize before the S&P 500 can break above its 50-day moving average in convincing fashion. However, some key growth stocks have already surged back above their 50-day and are poised to test 52-week highs, which is a large positive. Three of my longs, (CREE), (RUE) and (SXCI) and substantially outperforming today. I still like all three long around current levels. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, diminishing sovereign debt angst, earnings optimism, stable energy prices and bargain-hunting.

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