Thursday, September 08, 2011

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, More Financial Sector Pessimism, Global Growth Worries, Emerging Markets Inflation Fears


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Around Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 34.44 +3.18%
  • ISE Sentiment Index 116.0 -2.52%
  • Total Put/Call 1.10 +23.60%
  • NYSE Arms 1.41 +229.60%
Credit Investor Angst:
  • North American Investment Grade CDS Index 122.50 -.53%
  • European Financial Sector CDS Index 246.33 +2.32%
  • Western Europe Sovereign Debt CDS Index 315.17 unch.
  • Emerging Market CDS Index 286.99 +2.54%
  • 2-Year Swap Spread 31.0 -1 bp
  • TED Spread 33.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .01% -1 bp
  • Yield Curve 179.0 -5 bps
  • China Import Iron Ore Spot $179.90/Metric Tonne -.61%
  • Citi US Economic Surprise Index -42.30 +12.4 points
  • 10-Year TIPS Spread 2.01% +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating -81 open in Japan
  • DAX Futures: Indicating -62 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Tech and Medical sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades near session lows on rising Eurozone debt angst, more financial sector pessimism, more shorting, emerging markets inflation fears and global growth worries. On the positive side, Utility and Food shares are rising on the day. Lumber is rising +3.42%, Oil is falling -.7% and the UBS-Bloomberg Ag Spot Index is falling -.5%. On the negative side, Airline, Education, Insurance, HMO, Hospital, Medical, I-Bank, Bank, Oil Tanker, Alt Energy and Coal shares are under pressure, falling more than -2.0%. (XLF) has traded poorly throughout the day. Cyclical and small-cap stocks are substantially underperforming. Copper is falling -.17% and Gold is surging +3.0%. Rice is still near a multi-year high and has risen +35.0% in about 9 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.65/gallon. It is up .51/gallon in about 7 months. The Portugal sovereign cds is gaining +1.9% to 1,056.67 bps, the China sovereign cds is rising +1.7% to 117.38 bps, the Belgium sovereign cds is gaining +1.03% to 274.17 bps and the UK sovereign cds is rising +1.22% to 76.93 bps. The Greece sovereign cds is rising +5.4% to 2,811.72 bps, which is another all-time high. The Portugal sovereign cds is now getting uncomfortably close to its record high. The Eurozone Financial Sector and Western European Sovereign CDS Indices are still near all-time highs. The UBS-Bloomberg Ag Spot Index is still near its recent record high, which is also a large negative. The Shanghai Composite fell another -.68% last night and is down -11.0% ytd. I continue to believe most emerging markets have a larger inflation problem than is generally perceived. If China takes the breaks off too soon, which many suggest it might, it would likely prove a huge policy error intermediate-term. The AAII % Bulls fell to 30.2% this week, while the % Bears rose to 40.3, which is still slightly too much bullishness given the backdrop. Most gauges of eurozone debt angst remain very elevated and continue to trend higher, which remains a large concern. The euro currency is breaking down through meaningful technical support today. I still think the euro has much further downside longer-term, notwithstanding any near-term oversold technical bounce. Investors seemed to cheer the passage of further tax hikes/spending cuts yesterday in Italy and Spain, however these same measures are likely to worsen those economies and thus their debt problems as we have seen with Greece. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, more financial sector pessimism, more shorting, emerging markets inflation fears and global growth worries.

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