Wednesday, July 13, 2011

Stocks Rising Slightly Into Final Hour on Euro Bounce, Dovish Fed Commentary, Overseas Equity Strength, Short-Covering


Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 18.93 -4.13%
  • ISE Sentiment Index 109.0 -19.26%
  • Total Put/Call .92 -13.21%
  • NYSE Arms .64 -55.02%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.74 -2.09%
  • European Financial Sector CDS Index 137.33 -3.06%
  • Western Europe Sovereign Debt CDS Index 286.50 -.69%
  • Emerging Market CDS Index 219.86 -.20%
  • 2-Year Swap Spread 28.0 +1 bp
  • TED Spread 24.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% -2 bps
  • Yield Curve 253.0 -1 bp
  • China Import Iron Ore Spot $174.10/Metric Tonne +.58%
  • Citi US Economic Surprise Index -98.0 +1.1 points
  • 10-Year TIPS Spread 2.29% unch.
Overseas Futures:
  • Nikkei Futures: Indicating -15 open in Japan
  • DAX Futures: Indicating -9 open in Germany
Portfolio:
  • Higher: On gains in my Retail, Biotech and Medical sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just slightly higher despite strong gains in overseas equities, a bounce in the euro and dovish comments from Bernanke. On the positive side, Coal, Disk Drive, HMO, Education, Oil Service, Ag and Steel shares are especially strong, rising more than +1.0%. Cyclical and small-cap shares are outperforming. The Japan sovereign cds is falling -3.62% to 90.50 bps, the Belgium sovereign cds is down -4.6% to 185.54 bps and the US Muni CDS Index is down -3.49% to 131.69 bps. On the negative side, Defense, Utility, Semi, Telecom, Wireless, REIT and Airline shares are lower on the day. Tech shares continue to underperform. The 10-year yield is unch. at 2.88% despite more qe talk, a global equity rally and debt ceiling concerns. Gold is up +.71%, oil is rising +1.0% and the UBS-Bloomberg Ag Spot Index is gaining +1.8%. Rice is jumping another +3.1%. Rice is hitting a new multi-year high and has soared +27.4% in less than 2 weeks. Moreover, the UBS-Bloomberg Ag Spot Index is breaking out of its recent downtrend and is poised to test its 52-week high, which is also a large negative. The US price for a gallon of gas is +.01/gallon today to $3.65/gallon. It is up .51/gallon in less than 5 months. The Portugal sovereign cds is rising +.32% to 1,073.70 bps, the Ireland sovereign cds is rising +6.5% to 1,059.40 bps and the UK sovereign cds is rising +.23% to 74.33 bps. The Western Europe Sovereign CDS Index is hovering near its record high and the Ireland sovereign cds is making another new record today. Data over the last 24 hours, Bernanke's dovish commentary and the surge in oil/food prices have raised the odds of hard-landings in some key emerging market economies. The US government's weak dollar policies continue to be a massive mistake for the long-term health of the broad economy, in my opinion. Despite today's weak close, stocks remain very resilient in the face of still-developing negative headwinds. I will closely monitor tomorrow's opening reaction to earnings forecasts before further shifting market exposure. I expect US stocks to trade modestly lower into the close from current levels on eurozone debt angst, emerging markets inflation fears, rising food/energy prices, tech sector pessimism, US debt ceiling concerns, profit-taking, more shorting and global growth worries.

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