Friday, October 07, 2011

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, More Financial Sector Pessimism, Technical Selling, More Shorting

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Most Sectors Declining
  • Volume: About Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 36.87 +1.65%
  • ISE Sentiment Index 65.0 -26.97%
  • Total Put/Call 1.13 -5.04%
  • NYSE Arms 1.20 +238.41%
Credit Investor Angst:
  • North American Investment Grade CDS Index 138.31 -2.68%
  • European Financial Sector CDS Index 237.83 -.40%
  • Western Europe Sovereign Debt CDS Index 340.38 +.19%
  • Emerging Market CDS Index 346.27 -.55%
  • 2-Year Swap Spread 40.0 +1 bp
  • TED Spread 39.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 178.0 +5 bps
  • China Import Iron Ore Spot $170.0/Metric Tonne unch.
  • Citi US Economic Surprise Index -7.50 +7.2 points
  • 10-Year TIPS Spread 1.94 +5 basis points
Overseas Futures:
  • Nikkei Futures: Indicating -10 open in Japan
  • DAX Futures: Indicating -21 open in Germany
  • Slightly Higher: On gains in my Retail/Medical sector longs, Emerging Markets shorts and Index hedges
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added 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 reverses lower again near its downward sloping 50-day moving average on rising Eurozone debt angst, more financial sector pessimism and global growth worries. On the positive side, Semi and Retail shares are especially strong, rising more than +.5%. Copper is rising +1.66%, the Bloomberg-UBS Ag Spot Index is declining -.10% and Gold is falling -.62%. The 10-year yield is rising +9 bps to 2.07%. The Japan sovereign cds is falling -7.78% to 126.25 bps, the China sovereign cds is down -4.2% to 172.04 bps and the Brazil sovereign cds is falling -6.73% to 178.37 bps. Major Asian indices surged 1-3% overnight. On the negative side, Coal, Alt Energy, Oil Service, Steel, Wireless, Bank, I-Bank, Biotech, Insurance, REIT and Airline shares are under meaningful pressure, falling more than -1.75%. Small-cap and Cyclical shares are substantially underperforming. Oil is gaining +.56% and Lumber is falling -3.5%. Rice is still close to its multi-year high, rising +24.0% in about 12 weeks. The Germany sovereign cds is rising +1.2% to 98.17 bps, the France sovereign cds is gaining +2.02% to 176.67 bps, the Spain sovereign cds is jumping +7.74% to 368.67 bps and the UK sovereign cds is gaining +3.4% to 92.76 bps. The Libor-OIS Spread is rising +1 bps to 31.0 bps, which is the highest since July 2010. The FRA/OIS Spread is rising 3.42 bps to 54.3 bps, which is also the highest since July 2010. As well, the TED and 2-Year Swap Spreads haven't come in at all, which is also noteworthy considering the recent strong equity advance. The Western Europe Sovereign CDS Index, the European Financial Sector CDS Index and the Asia-Pacific Sovereign CDS Index are still near their records. Ukraine shares fell another -1.2% today, notwithstanding gains in much of Europe, and are now down -47.2% ytd. As well, Brazilian equities fell -2.2% today and are now down -25.8% ytd. Various global credit angst gauges continue to trend higher, despite recent pullbacks, which remains a large negative. The average stock, as measured by the Value Line Geometric Growth Index, fell about -2.0% today. I still believe investors have gotten a bit ahead of themselves with respect to the prospects for a "solution" in Europe. Moreover, even if another "kick the can" solution is imminent, the economies in the region will likely continue to deteriorate as the massive tax hikes and spending cuts intensify, which will further exacerbate their debt issues over the longer-term. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, more financial sector pessimism, global growth worries, technical selling, more shorting and profit taking.

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