Friday, February 18, 2011

Stocks Slightly Higher into Final Hour on Stable Long-Term Rates/Energy Prices, Short-Covering, Technical Buying, Buyout Speculation


Broad Market Tone:

  • Advance/Decline Line: Slightly Lower
  • Sector Performance: Mixed
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 16.81 +1.33%
  • ISE Sentiment Index 127.0 +2.42%
  • Total Put/Call .89 +25.35%
  • NYSE Arms 1.43 +89.20%
Credit Investor Angst:
  • North American Investment Grade CDS Index 79.52 -.33%
  • European Financial Sector CDS Index 129.17 bps +1.13%
  • Western Europe Sovereign Debt CDS Index 172.33 bps -.96%
  • Emerging Market CDS Index 218.57 +.56%
  • 2-Year Swap Spread 21.0 +1 bp
  • TED Spread 22.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .09% unch.
  • Yield Curve 283.0 +2 bps
  • China Import Iron Ore Spot $189.30/Metric Tonne -1.35%
  • Citi US Economic Surprise Index +72.0 -.1 point
  • 10-Year TIPS Spread 2.37% +8 bps
Overseas Futures:
  • Nikkei Futures: Indicating -2 open in Japan
  • DAX Futures: Indicating -10 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Medical and Retail long positions
  • Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades flat, despite recent equity gains, China inflation concerns and rising Mideast unrest. On the positive side, Education, HMO and Medical shares are especially strong, rising more than 1.0%. The Naz is holding up despite (AAPL) weakness. The 10-year yield is stable at 3.59%. Oil continues to mostly ignore the situation in the Mideast, rising inflation expectations, improving economic data and a rising euro. The UBS-Bloomberg Ag Spot Index is falling -1.6%. Lumber is rising +.81%. On the negative side, Disk Drive, Computer, Airline, Paper, Steel, Ag, Oil Tanker, Alt Energy and Coal shares are under pressure, falling more than 1.0%. Cyclicals are underperforming. The Saudi sovereign cds is jumping +9.54% to 138.28 bps and the Israeli sovereign cds is climbing +4.25% to 152.30 bps. US equities remain extraordinarily resilient to any potential headwinds as they continue their slow grind higher. Investor complacency regarding the deteriorating situation in the Mideast seems fairly high. Any significant decline in stability in the region from current levels will likely send oil back into the $90s. As well, rising unrest means more government food hoarding. Any meaningful rise in food or energy prices from current levels will significantly increase the odds of hard-landings in some key emerging market economies. So far, the market is mostly ignoring this possibility. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Mideast unrest, profit-taking, China inflation fears and more shorting.

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