Friday, January 21, 2011

Stocks Slightly Higher into Final Hour on Less Eurozone Debt Angst, Earnings Optimism, Less Financial Sector Pessimism, Short-Covering


Broad Market Tone:

  • Advance/Decline Line: Slightly Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Around Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 18.04 +.28%
  • ISE Sentiment Index 124.0 +26.25%
  • Total Put/Call .79 -15.05%
  • NYSE Arms .91 +27.51%
Credit Investor Angst:
  • North American Investment Grade CDS Index 82.95 -3.13%
  • European Financial Sector CDS Index 143.92 bps +1.25%
  • Western Europe Sovereign Debt CDS Index 178.83 bps -3.42%
  • Emerging Market CDS Index 202.71 +.13%
  • 2-Year Swap Spread 23.0 unch.
  • TED Spread 15.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 281.0 -1 bp
  • China Import Iron Ore Spot $185.70/Metric Tonne +.16%
  • Citi US Economic Surprise Index +38.60 -.6 point
  • 10-Year TIPS Spread 2.18% -14 bps
Overseas Futures:
  • Nikkei Futures: Indicating +60 open in Japan
  • DAX Futures: Indicating +20 open in Germany
Portfolio:
  • Slightly Higher: On gains in my ETF hedges and Ag/Medical long positions
  • Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and then covered them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly higher, despite some positive earnings reports, a bounce back in Chinese/European equities and diminishing eurozone sovereign debt angst. On the positive side, Medical Equipment, Bank and Paper shares are especially strong, rising more than 1.0% today. (XLF) has outperformed throughout the day. Copper is rising +.97%, Lumber is jumping +3.3% and the 10-year yield is falling -4 bps to 3.41%. The Spain sovereign cds is declining -4.34% to 265.46 bps, the Belgium cds is falling -4.64% to 180.29, the Italy sovereign cds is falling -4.17% to 185.84 bps and the Portugal sovereign cds is falling -4.87% to 435.85 bps. The Western Europe Sovereign CDS Index is now -39 bps off its record high set on January 11. Moreover, the US Muni CDS Index is dropping -2.53% to 203.85 bps. On the negative side, Airline, Homebuilding, Hospital, Biotech, Disk Drive, Internet, Oil Tanker and Coal shares are under meaningful pressure, falling more than 1.0%. Small-caps are underperforming. Tech and Transport shares have also underperformed throughout the day again. Rough Rice futures are up another +1.03% and have surged +10.3% in 10 days. China's 7-day Repo Rate is jumping another +127 bps today to 7.3% on tightening concerns. The DJIA continues to hold up very well and is making another new multi-year high today. However, some divergences have developed and some key stocks have had poor reactions to strong earnings reports. Tech and transports have been noticeably weak during this last move higher in the Dow. Breadth has also been lacking. The technical breakdown in the 10-year TIPS spread during a time of soaring commodities, better economic data and less european sovereign debt angst is noteworthy. As well, gold continues to trade poorly. This may indicate that investors are becoming increasingly concerned by the possibility of economic hard landings in some key emerging markets. One of my longs, (ISRG), is soaring +13% today on its largest volume since Oct. 2009 as investors cheer its latest earnings release. I expect this stock, which lagged the market badly last year, to resume its usual outperformance this year. I still see significant upside in the shares over the intermediate/long-term. I expect US stocks to trade modestly lower into the close from current levels on China inflation fears, profit-taking, technical selling and more shorting.

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