Tuesday, April 12, 2011

Stocks Lower into Final Hour on Japan Concerns, Emerging Markets Inflation Fears, Technical Selling, Commodity Sector Weakness

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.11 +3.1%
  • ISE Sentiment Index 134.0 +12.61%
  • Total Put/Call 1.10 +17.01%
  • NYSE Arms .62 -32.0%
Credit Investor Angst:
  • North American Investment Grade CDS Index 95.50 +2.13%
  • European Financial Sector CDS Index 81.75 +2.96%
  • Western Europe Sovereign Debt CDS Index 162.33 bps +.93%
  • Emerging Market CDS Index 196.62 +1.58%
  • 2-Year Swap Spread 17.0 -1 bp
  • TED Spread 24.0 -1bp
Economic Gauges:
  • 3-Month T-Bill Yield .04% unch.
  • Yield Curve 275.0 unch.
  • China Import Iron Ore Spot $181.90/Metric Tonne -.60%
  • Citi US Economic Surprise Index +28.50 -4.3 points
  • 10-Year TIPS Spread 2.63% -1 bp
Overseas Futures:
  • Nikkei Futures: Indicating -15 open in Japan
  • DAX Futures: Indicating +28 open in Germany
  • Slightly Lower: On losses in my Medical, Tech and Biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows despite buyout speculation, lower long-term rates and falling food/energy prices. On the positive side, Hospital, HMO, Restaurant, Road & Rail, Airline and Retail shares are slightly higher on the day. The Transports are displaying significant relative strength for the second day in a row. As well, (XLF)/(IYR) aren't down too much. Oil is falling -3.25%, the UBS-Blomberg Ag Spot Index is falling -2.35% and gold is declining -.88%. Weekly retail sales jumped +4.7% this week versus a +1.9% gain the prior week. This is the best weekly gain since the week of May 2nd, 2006. On the negative side, Alt Energy, Semi, Wireless, Homebuilding, Gaming, Coal, Oil Tanker, Energy, Oil Service, Steel, Construction and Education shares are under significant pressure, falling more than -2.0%. Cyclicals and small-caps are underperforming again. Commodity-related stocks have been especially heavy for the second day in a row. Copper is falling -1.89% and Lumber is falling another -.89%. Lumber is down about -22% in 2 weeks. The US price for a gallon of gas is up +.02 today to $3.79/gallon. It is up .67/gallon in 56 days. The 10-year TIPS spread is maintaining recent gains despite the decline in commodities. The Bloomberg Autos Anchored Index continues to surge and is now at the highest level since August 29th, 2009. The US dollar continues to trade very poorly, which remains a huge long-term negative for US equities. The Spain sovereign cds is rising +4.82% to 210.46 bps, the Portugal sovereign cds is gaining +3.19% to 560.55 bps, the Japan sovereign cds is rising +3.79% to 88.21 bps, the Russia sovereign cds is gaining +3.1% to 126.83 bps, the Belgium sovereign cds is jumping +5.45% to 124.17 bps, the UK sovereign cds is gaining +3.76% to 52.02 bps and the Brazil sovereign cds is climbing +3.7% to 107.34 bps. The broad market is finally buckling in the face of a number of headwinds. However, if the decline in food/energy prices picks up steam without the global economy slowing too much, inflation expectations would fall significantly, which should help to boost the broad market back to 52-week highs on multiple expansion later in the year. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, technical selling, rising Mideast unrest, eurozone debt angst, emerging markets inflation fears, profit-taking and Japan concerns.

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