Tuesday, October 18, 2011

Stocks Higher into Final Hour on Eurozone Rumors, Less Financial Sector Pessimism, Short-Covering, Bargain-Hunting

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 30.90 -7.43%
  • ISE Sentiment Index 80.0 -5.88%
  • Total Put/Call 1.01 -11.40%
  • NYSE Arms .46 -78.79%
Credit Investor Angst:
  • North American Investment Grade CDS Index 135.93 +2.07%
  • European Financial Sector CDS Index 230.62 +1.36%
  • Western Europe Sovereign Debt CDS Index 340.17 -.73%
  • Emerging Market CDS Index 298.98 -3.05%
  • 2-Year Swap Spread 37.0 -2 bp
  • TED Spread 39.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .02% unch.
  • Yield Curve 191.0 +3 bps
  • China Import Iron Ore Spot $153.40/Metric Tonne -2.02%
  • Citi US Economic Surprise Index 10.60 +8.6 points
  • 10-Year TIPS Spread 1.98 +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +129 open in Japan
  • DAX Futures: Indicating +97 open in Germany
  • Higher: On gains in my Tech, Biotech, Retail, Medical sector longs and Index hedges
  • Disclosed Trades: Covered all of my (QQQ)/(IWM) hedges and some of my (EEM) short, then added some back
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 reverses morning losses despite rising global debt angst, some earnings disappointments, rising global growth worries and rising energy prices. On the positive side, Coal, Oil Tanker, Energy, Oil Service, Disk Drive, Bank, I-Banking, Insurance, Homebuilding and Road & Rail shares are especially strong, rising more than +3%. Cyclicals and small-caps are outperforming. (XLF) has traded very well throughout the day. Lumber is gaining +2.1%, gold is down -.5% and copper is rising +.78%. Weekly retail sales rose +4.7% versus a +4.8% gain the prior week. On the negative side, Computer Service and HMO shares are lower on the day. Oil is rising +2.6%. Rice is still close to its multi-year high, rising +29.0% in about 14 weeks. The Spain sovereign cds is rising +6.05% to 376.67 bps, the China sovereign cds is jumping +8.3% to 161.75 bps, the Japan sovereign cds is rising +4.5% to 119.20 bps, the Israel sovereign cds is up +2.65% to 154.10 bps and the Brazil sovereign cds is up +2.72% to 158.49 bps. Moreover, the European Investment Grade CDS Index is rising +4.3% to 171.93 bps. The Libor-OIS Spread is rising +1.0 bp to 33.0 bps, which is the highest since July 2010. As well, the TED, 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. Asian equity indices were weak overnight, falling 2-3%. Hong Kong plunged -4.2% and is now down -21.5% ytd. China Iron Ore Spot continues to pick up downside steam, falling -21.7% since February 16th and -17.0% since Sept. 7th. Investors responded positively to financial sector reports and more Euro debt crisis rumors. However, volume was below average and gauges of eurozone credit angst mostly worsened, which leads me to believe most of today's stock reversal was once again mostly related to short-covering. One of my longs, (AAPL), reports after the close. While I expect a very good report, the set-up for the stock is not ideal short-term. I still expect the shares to substantially outperform the market over the longer-run. I expect US stocks to trade mixed-to-lower into the close from current levels on rising global debt angst, rising global growth fears, more shorting, profit-taking, rising energy prices and technical selling.

No comments: