Tuesday, June 28, 2011

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Quarter-End Window Dressing, Short-Covering, Earnings Optimism

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 19.42 -5.54%
  • ISE Sentiment Index 109.0 unch.
  • Total Put/Call .94 +9.30%
  • NYSE Arms .71 +13.40%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.49 -2.24%
  • European Financial Sector CDS Index 127.49 -3.11%
  • Western Europe Sovereign Debt CDS Index 239.50 -.96%
  • Emerging Market CDS Index 224.55 -3.54%
  • 2-Year Swap Spread 23.0 -4 bps
  • TED Spread 23.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .02% +1 bp
  • Yield Curve 255.0 +2 bps
  • China Import Iron Ore Spot $168.40/Metric Tonne -.06%
  • Citi US Economic Surprise Index -99.40 -2.5 points
  • 10-Year TIPS Spread 2.29% +6 bps
Overseas Futures:
  • Nikkei Futures: Indicating +112 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, then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 moves further off its 200-day moving average despite eurozone debt angst, global growth concerns, emerging market inflation fears, rising food/energy prices, US debt ceiling worries and more weak US economic data. On the positive side, Education, , Gaming, Restaurants, Construction, HMO, Biotech, Networking, Steel, Oil Service, Energy and Coal shares are especially strong, rising more than +1.75%. Small-caps and cyclicals are outperforming. As well, "growth" shares are strongly outperforming "value" again today. The 10-year yield is rising +10 bps to 3.03%. Copper is rising +1.1%. The Greece sovereign cds is falling -3.4% to 2,036.50 bps, the Spain sovereign cds is falling -2.93% to 288.0 bps, the Italy sovereign cds is down -5.2% to 194.0 bps, the Ireland sovereign cds is -3.37% to 796.17 bps, the Russia sovereign cds is down -4.36% to 153.17 bps, the Hungary sovereign cds is down -5.8% to 266.85 bps, the Saudi sovereign cds is declining -4.17% to 97.14 bps and the UK sovereign cds is down -3.2% to 66.5 bps. Weekly retail sales rose +3.5% this week versus a +3.9% gain the prior week. On the negative side, Bank, Oil Tanker, Airline, Tobacco and I-Banking shares are flat-to-modestly lower on the day. (XLF)/(IYR) have underperformed throughout the day. Lumber is falling -2.6%, oil is rising +2.2% and the UBS-Bloomberg Ag Spot Index is rising +2.2%. The US price for a gallon of gas is -.02/gallon today to $3.55/gallon. It is up .41/gallon in less than 5 months. The China sovereign cds is near a 52-week high, rising +2.2% to 88.6 bps and the Emerging Markets Sovereign CDS Index is gaining +3.3% to 183.08 bps. Some key Asian indices were unable to rally overnight. Eurozone cds are lower, but not as much as I would have expected given the strength of equity markets in anticipation of a positive Greece outcome. Breadth is better today, but volume remains lackluster. As well, the lack of participation by the financials is a worry. Stocks should rally on tomorrow morning's expected outcome, however profit-taking may surface later in the day as the longer-term eurozone debt situation remains a large problem. I expect US stocks to trade mixed-to-higher from current levels into the close on short-covering, quarter-end window dressing, less eurozone debt angst, bargain-hunting and technical buying.

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