Monday, June 27, 2011

Stocks Rising into Final Hour on Short-Covering, Euro Bounce, Tech Sector Strength, 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 20.30 -3.79%
  • ISE Sentiment Index 109.0 +12.37%
  • Total Put/Call .81 -21.86%
  • NYSE Arms .58 -74.31%
Credit Investor Angst:
  • North American Investment Grade CDS Index 100.75 +.72%
  • European Financial Sector CDS Index 130.83 +.52%
  • Western Europe Sovereign Debt CDS Index 241.83 +2.54%
  • Emerging Market CDS Index 232.79 -.84%
  • 2-Year Swap Spread 27.0 -2 bps
  • TED Spread 24.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .01% +1 bp
  • Yield Curve 253.0 unch.
  • China Import Iron Ore Spot $168.50/Metric Tonne -.12%
  • Citi US Economic Surprise Index -96.90 +1.0 point
  • 10-Year TIPS Spread 2.23% +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +97 open in Japan
  • DAX Futures: Indicating +59 open in Germany
  • Higher: On gains in my Retail, Biotech, Medical and Tech longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, added back (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 bounces strongly off its 200-day moving average on despite eurozone debt angst, global growth concerns, emerging market inflation fears, US debt ceiling worries and more weak US economic data. On the positive side, Internet, Software, Networking, Airline, HMO, Bank and Computer Service shares are especially strong, rising more than +1.75%. Tech shares have strongly outperformed throughout the day. As well, "growth" shares are strongly outperforming "value". The 10-year yield is bouncing +6 bps to 2.92%. The UBS-Bloomberg Ag Spot Index is dropping -.25%, oil is falling -.8% and gold is down -.4%. The Greece sovereign cds is falling -3.5% to 2,108.33 bps and the Portugal sovereign cds is declining -1.2% to 831.59 bps. On the negative side, Education, REIT, Ag, Oil Tanker and Coal shares are underperforming, rising less than +.5%. Cyclicals are underperforming. Copper is falling -1.2%. The US price for a gallon of gas is -.03/gallon today to $3.57/gallon. It is up .43/gallon in less than 5 months. The Ireland sovereign cds is gaining +2.39% to 826.39 bps, the Hungary sovereign cds is rising +3.05% to 283.22 bps, the Japan sovereign cds is gaining +1.92% to 93.0 bps, the US sovereign cds is gaining +2.36% to 54.0, the US Muni CDS Index is climbing +2.23% to 147.07 bps, the UK sovereign cds is rising +2.04% to 169.11, the Egypt sovereign cds is rising +4.21% to 319.99 bps and the Saudi sovereign cds is rising +4.1% to 101.37bps. The Ireland sovereign cds is hitting another all-time high today. The Western Europe Sovereign CDS Index is also making another record high. Eurozone cds are not confirming today's euro currency bounce higher, which is a large negative. Some of today's upside action is likely short-covering as hedge funds protect short profits at quarter-end. Breadth isn't great today and volume is lackluster. Oil and food prices are unable to bounce today despite equity strength and a bounce in the euro, which is a positive. It appears as though a rotation into less economically sensitive equities is intensifying. I would like to see better breadth/volume and a meaningful reversal lower in eurozone cds indices before feeling more comfortable in the sustainability of today's advance. I expect US stocks to trade mixed-to-higher from current levels into the close on tech sector strength, short-covering, lower energy/food prices, a bounce in the euro, bargain-hunting and technical buying.

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