Tuesday, October 25, 2011

Stocks Falling Sharply Into Final Hour On Rising Global Debt Angst, Global Growth Worries, Rising Energy Prices and Financial Sector Pessimism

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 30.66 +4.78%
  • ISE Sentiment Index 72.0 -32.71%
  • Total Put/Call .97 +2.11%
  • NYSE Arms 1.35 +93.92%
Credit Investor Angst:
  • North American Investment Grade CDS Index 128.97 -.67%
  • European Financial Sector CDS Index 224.63 +1.65%
  • Western Europe Sovereign Debt CDS Index 340.83 -.28%
  • Emerging Market CDS Index 307.15 +.96%
  • 2-Year Swap Spread 38.0 +1 bp
  • TED Spread 42.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 186.0 -9 bps
  • China Import Iron Ore Spot $131.70/Metric Tonne -7.19%
  • Citi US Economic Surprise Index 11.90 -5.1 points
  • 10-Year TIPS Spread 2.03 unch.
Overseas Futures:
  • Nikkei Futures: Indicating -72 open in Japan
  • DAX Futures: Indicating -32 open in Germany
  • Slightly Lower: On losses in my Medical, Biotech and Tech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short and then covered some
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 failed to maintain 1,250 on rising financial sector pessimism, global debt angst, rising energy prices, emerging markets inflation worries, earnings outlooks and global growth fears. On the positive side, Hospital and HMO shares are rising on the day. Major Asian equity indices rose .5-1.5% overnight. Weekly retail sales rose +4.5% versus a +4.7% gain the prior week. On the negative side, Coal, Alt Energy, Steel, Internet, Disk Drive, Bank, I-Bank, Biotech, Homebuilding, Gaming and Airline shares are especially weak, falling more than 2.5%. Small-cap and cyclical shares are underperforming. (XLF) has traded poorly throughout the day. Oil is rising +1.5%, Copper is falling -1.0%, Lumber is down -1.4% and Gold is surging +2.89% higher. Despite the recent rally in equities, better economic data and rising inflation expectations, the 10-year yield is lower over the last 2 weeks, which is also a negative. Rice is still close to its multi-year high, rising +34.0% in about 15 weeks. The Spain sovereign cds is jumping +7.5% to 381.33 bps, the Italy sovereign cds is rising +2.12% to 456.0 bps and the Ireland sovereign cds is up +1.27% to 782.33 bps. The TED spread is now at the highest since June 2010. The Libor-OIS spread is at the widest since July 2010. The 2-Year Euro Swap and 2-Year swap spreads are still very close to their recent highs, 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 and trending higher. China Iron Ore Spot continues to pick up downside steam, plunging -31.4% since February 16th and -27.2% since Sept. 7th. Oil is trading very well, which is a large negative for emerging market economies. This is likely mainly the result of US QE3 talk, EFSF leveraging talk, the US pullout from Iraq, Islamist election victories in the Mideast and Turkey's recent incursions into Iraq. A surge back above $100/bbl would be a large negative for the fragile global economy. While short-term traders focus intensely on whether or not Europe will use more debt to "solve" an acute debt crisis, the real question is whether or not the Eurozone will be able to turn around the deteriorating economies of the region with their current actions. I expect US stocks to trade modestly lower into the close from current levels on global debt angst, profit-taking, technical selling, rising energy prices, emerging markets inflation fears, rising financial sector pessimism, earnings outlooks, global growth worries and more shorting.

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