Thursday, September 02, 2010

Stocks Rising into Final Hour on Declining Sovereign Debt Angst, Less Economic Fear, Short-Covering, Technical Buying


Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 23.45 -1.84%
  • ISE Sentiment Index 111.0 +4.72%
  • Total Put/Call .94 +14.63%
  • NYSE Arms .56 +123.63%
Credit Investor Angst:
  • North American Investment Grade CDS Index 108.24 bps -1.64%
  • European Financial Sector CDS Index 117.73 bps -4.49%
  • Western Europe Sovereign Debt CDS Index 145.67 bps -2.42%
  • Emerging Market CDS Index 248.85 bps -.98%
  • 2-Year Swap Spread 19.0 +1 bp
  • TED Spread 17.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .12% -1 bp
  • Yield Curve 213.0 +6 bps
  • China Import Iron Ore Spot $144.90/Metric Tonne +2.19%
  • Citi US Economic Surprise Index -42.30 +.9 point
  • 10-Year TIPS Spread 1.63% +5 bps
Overseas Futures:
  • Nikkei Futures: Indicating +2 open in Japan
  • DAX Futures: Indicating +10 open in Germany
Portfolio:
  • Higher: On gains in my Tech, Biotech, Retail, Ag and Medical long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 breaks above its 50-day moving average, building on yesterday's sharp gains, ahead of a likely poor jobs report tomorrow. On the positive side, Semi, Oil Tanker, Disk Drive, Retail and Restaurant shares are especially strong, rising 2.0%+. (IYR) has outperformed throughout the day. Cyclicals are also outperforming. The S&P GSCI Ag Spot Index is rising another .8%. Moreover, the 10-year yield is rising +5 bps to 2.62%, which is also a big positive. The European Investment Grade CDS Index is dropping -5.13% to 100.75 bps and the US sovereign cds is dropping -3.97% to 45.93 bps. As well, the Spain sovereign cds is dropping -2.85% to 223.92 bps, the Portugal sovereign cds is falling -5.19% to 304.78 bps and the UK sovereign cds is dropping -5.08% to 66.58 bps. The AAII % Bulls rose to 30.8% this week, while the % Bears fell to 42.2%. Overall bearish sentiment towards US stocks remains a major market positive. On the negative side, HMO, Drug, Telecom, Computer Service and Utility shares are falling slightly. The Ireland sovereign cds is gaining +1.91% to 334.47 bps. With investor sentiment still so bearish, technicals improving and hedge funds underexposed to stocks, I suspect any kneejerk market weakness on tomorrow's well-telegraphed likely weak jobs report will succumb to bargain-hunting and short-covering by tomorrow afternoon ahead of a three-day weekend. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less economic fear, diminishing sovereign debt angst, less real estate sector pessimism, buyout speculation and technical buying.

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