Monday, October 24, 2011

Stocks Rising into Final Hour on European Debt Crisis Optimism, Diminishing Global Growth Worries, More US QE3 Talk, Short-Covering

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 29.42 -6.07%
  • ISE Sentiment Index 115.0 +7.48%
  • Total Put/Call .96 +12.94%
  • NYSE Arms .62 -39.08%
Credit Investor Angst:
  • North American Investment Grade CDS Index 129.83 -1.30%
  • European Financial Sector CDS Index 217.46 -2.45%
  • Western Europe Sovereign Debt CDS Index 338.33 +.20%
  • Emerging Market CDS Index 303.78 -2.93%
  • 2-Year Swap Spread 37.0 -1 bp
  • TED Spread 42.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% -1 bp
  • Yield Curve 195.0 +1 bp
  • China Import Iron Ore Spot $141.90/Metric Tonne -.49%
  • Citi US Economic Surprise Index 17.0 +2.2 points
  • 10-Year TIPS Spread 2.03 +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +3 open in Japan
  • DAX Futures: Indicating +4 open in Germany
  • Higher: On gains in my Medical, Retail, Biotech and Tech sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades right to technical resistance at 1,250 as it approaches its 200-day moving average, despite global debt angst, rising food/energy prices, emerging markets inflation worries and global growth fears. On the positive side, Coal, Alt Energy, Oil Service, Steel, Computer, Semi, Networking, Bank, HMO, Construction, Homebuilding, Gaming and Airline shares are especially strong, rising more than +2.5%. Cyclicals and small-caps are outperforming. (XLF) has traded well throughout the day. Copper is jumping +7.1%. Major Asian equity indices rose 2-4% today. The China sovereign cds is falling -7.68% to 139.36 bps and the Spain sovereign cds is down -5.32% to 354.83 bps. On the negative side, Utility, Telecom, Road & Rail, Retail, Restaurant, Drug, Energy and Oil Tanker shares are lower-to-slightly higher on the day. Oil is jumping +4.2%, the UBS-Bloomberg Ag Spot Index is rising +1.45% and Gold is +.8% higher. Despite the recent rally in equities, the 10-year yield is just slightly higher over the last five days, which is also a negative. Rice is still close to its multi-year high, rising +33.0% in about 15 weeks. The France sovereign cds is climbing +1.6% to 189.17 bps, the Italy sovereign cds is rising +1.0% to 450.33 bps, the Portugal sovereign cds is climbing +3.1% to 1,112.33 bps, the Ireland sovereign cds is up +1.09% to 772.50 bps, the Belgium sovereign cds is up +3.2% to 299.33 bps and the UK sovereign cds is rising +1.0% to 84.66 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, falling -26.05% since February 16th and -21.6% since Sept. 7th. Investors are cheering a positive economic datapoint out of China, a potential leveraged EFSF European debt "solution" and more US QE3 talk. This is sending commodities soaring, which is a large negative for emerging market economies. As well, the ratings agencies have yet to weigh in on the ramifications of using more debt in Europe to solve an acute debt crisis, which could prove a large snag. I expect US stocks to trade mixed-to-lower into the close from current levels on global debt angst, profit-taking, technical selling, rising food/energy prices, emerging markets inflation fears and more shorting.


Anonymous said...

Gary, do you follow AVNR?

Gary said...

I looked at it at some point in the past, but not recently.