Wednesday, October 12, 2011

Stocks Higher into Final Hour on Less Eurozone Debt Angst, Less Financial Sector Pessimism, Short-Covering, Diminishing Global Growth Fears

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 30.63 -6.79%
  • ISE Sentiment Index 97.0 -24.22%
  • Total Put/Call 1.24 -12.06%
  • NYSE Arms .63 -33.64%
Credit Investor Angst:
  • North American Investment Grade CDS Index 129.43 -4.11%
  • European Financial Sector CDS Index 218.08 -4.35%
  • Western Europe Sovereign Debt CDS Index 335.33 -1.01%
  • Emerging Market CDS Index 304.98 -7.66%
  • 2-Year Swap Spread 37.0 -1 bp
  • TED Spread 39.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .01% +1 bp
  • Yield Curve 193.0 +8 bps
  • China Import Iron Ore Spot $162.0/Metric Tonne -1.46%
  • Citi US Economic Surprise Index -1.50 +1.0 point
  • 10-Year TIPS Spread 1.99 +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +125 open in Japan
  • DAX Futures: Indicating +14 open in Germany
  • Higher: On gains in my Tech, Retail and Medical sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades back to the high-end of its range over the last 2 months on less Eurozone debt angst, less financial sector pessimism, short-covering and diminishing global growth fears. On the positive side, Alt Energy, Oil Tanker, Paper, Bank, I-Banking, Hospital, Insurance, Construction, REIT, Education and Airline shares are especially strong, rising more than +2.0%. Cyclical and Small-cap shares have outperformed throughout the day again. As well, (XLF) is trading relatively well. Copper is rising +2.21% and the UBS-Bloomberg Ag Spot Index is falling -.6%. The 10-Year Yield is rising +6 bps to 2.21%. The Russia sovereign cds is falling -8.6% to 246.33 bps, the UK sovereign cds is falling -3.24% to 84.33 bps and the Brazil sovereign cds is plunging -11.46% to 154.45 bps. Major Asian and European equity indices rallied 1-3% today. On the negative side, Computer, Utility, Disk Drive, Networking, Biotech and Restaurant shares are flat-to-lower on the day. (XLK) has lagged throughout the day. Lumber is falling -3.2% and Gold is rising +.88%. Rice is still close to its multi-year high, rising +29.5% in about 13 weeks. The Spain sovereign cds is rising +1.29% to 356.17 bps, the Portugal sovereign cds is gaining +.69% to 1,096.77 bps, the Ireland sovereign cds is gaining +2.16% to 710.0 bps, the Japan sovereign cds is gaining +3.37% to 115.68 bps and the China sovereign cds is soaring +15.3% to 166.10 bps. The Libor-OIS Spread is +1 bp to 32.0 bps, which is the highest since July 2010. As well, the TED 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 despite the recent pullbacks. The Nikkei fell -.4% overnight, despite gains in the rest of Asia, and is -14.6% lower ytd. As well, Russian equities sat out today's advance and are down -20.3% ytd. Many of the most economically sensitive multi-national stocks have soared over the last week, despite (AA)'s cautionary comments on the state of demand in Europe, and are now very overbought technically. As well, the S&P 500 is now at the top end of its range over the last 2 months. I suspect stocks will, at best, thrash around current levels over the near-term unless earnings outlooks are stronger than I expect over the coming days. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, more shorting, technical selling and global debt angst.

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