Thursday, October 14, 2010

Stocks Modestly Lower into Final Hour on Rising Financial Sector Pessimism, Economic Fear, Profit-Taking, More Shorting


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 20.98 +10.02%
  • ISE Sentiment Index 108.0 -.92%
  • Total Put/Call .78 +8.33%
  • NYSE Arms 1.52 +67.40%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.15 bps +4.69%
  • European Financial Sector CDS Index 97.0 bps +7.07%
  • Western Europe Sovereign Debt CDS Index 139.33 bps -2.45%
  • Emerging Market CDS Index 195.20 bps +2.74%
  • 2-Year Swap Spread 18.0 +2 bps
  • TED Spread 15.0 -2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .13% +1 bp
  • Yield Curve 212.0 +6 bps
  • China Import Iron Ore Spot $152.70/Metric Tonne +1.26%
  • Citi US Economic Surprise Index -4.10 -7.0 points
  • 10-Year TIPS Spread 2.14% +9 bps
Overseas Futures:
  • Nikkei Futures: Indicating -58 open in Japan
  • DAX Futures: Indicating +2 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Medical, Retail and Biotech long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just modestly lower despite meaningful financial sector weakness, rising economic fear and recent sharp equity gains. On the positive side, Alt Energy, Ag, Computer, Computer Service, Telecom and Restaurant shares are higher on the day. The MS Tech Index is slightly higher on the day. The S&P GSCI Ag Spot Index is rising +.6%. The Portugal sovereign cds is falling -1.53% to 374.31 bps, the Greece sovereign cds is declining -1.11% to 682.04 bps and the Ireland sovereign cds is falling -2.49% to 407.93 bps. Moreover, the US sovereign cds is falling -3.49% to 42.19 bps. On the negative side, Education, Bank and Oil Tanker shares are under pressure, falling more than 2.0%. (XLF) is underperforming badly again. Cyclicals are also underperforming. The Hungary sovereign cds is climbing +4.22% to 268.53 bps. The euro financial sector cds index is recouping some recent losses, which is also a negative. Copper is falling -.76% despite more euro strength. Given today's news, the market's resilience is very impressive and the bears remain unable to gain any traction. (AAPL) is trading well around the $300 level and, after a brief pause, should move towards $325 over the coming weeks. One of my longs, (GOOG), reports after the close today. Its put/call open interest ratio is currently 1.20, which is near the highest over the last few years. As well, short interest in the shares has moved back to the high-end of its recent range. I expect US stocks to trade mixed-to-higher into the close from current levels on falling sovereign debt angst, buyout speculation, rising QE2 expectations and tax policy/election optimism.

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