Friday, October 28, 2011

Stocks Rising Slightly into Final Hour on Diminishing Global Growth Worries, Less Tech Sector Pessimism, Short-Covering, Technical Buying

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 24.67 -3.10%
  • ISE Sentiment Index 129.0 +17.3%
  • Total Put/Call 1.02 +13.33%
  • NYSE Arms .87 +143.53%
Credit Investor Angst:
  • North American Investment Grade CDS Index 114.54 -1.41%
  • European Financial Sector CDS Index 191.5 +1.52%
  • Western Europe Sovereign Debt CDS Index 313.0 +.18%
  • Emerging Market CDS Index 261.66 +1.51%
  • 2-Year Swap Spread 31.0 -2 bps
  • TED Spread 43.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 202.0 -6 bps
  • China Import Iron Ore Spot $116.90/Metric Tonne -2.75%
  • Citi US Economic Surprise Index 17.80 +2.6 points
  • 10-Year TIPS Spread 2.15 -3 bps
Overseas Futures:
  • Nikkei Futures: Indicating -10 open in Japan
  • DAX Futures: Indicating -2 open in Germany
  • Higher: On gains in my Biotech, Tech and Medical sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short and then added some back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 consolidates recent sharp gains above its 200-day moving-average despite more Eurozone debt angst and profit-taking. On the positive side, Coal, Computer, Internet, Alt Energy, Steel, Disk Drive, Networking and Gaming shares are especially strong, rising more than 1.0%. Tech shares have traded well throughout the day. Lumber is up +.59%, the UBS-Bloomberg Ag Spot Index is down -.7%, oil is dropping -.44% and copper is rising +.4%. The Italy sovereign cds is dropping -5.6% to 394.50 bps, the China sovereign cds is falling -9.67% to 117.48 bps, the Japan sovereign cds is falling -4.6% to 95.84 bps and the US sovereign cds is falling -7.3% to 37.53 bps. Moreover, the European Investment Grade CDS Index is dropping another -5.85% to 135.48 bps. On the negative side, Defense, Utility, I-Bank, Insurance and Education shares are under mild pressure, falling more than -.5%. Small-cap shares are relatively weak. (XLF) has underperformed throughout the day. The 10-year yield is falling -8 bps to 2.32%. The Germany sovereign cds is jumping +7.0% to 76.33 bps, the Russia sovereign cds is gaining +2.2% to 190.33 bps and the UK sovereign cds is gaining +2.84% to 73.17 bps. Moreover, the California municipal cds is jumping +9.3% to 220.25 bps. Rice is still close to its multi-year high, rising +32.0% in about 15 weeks. The Italian/German 10-year yield spread surged +17.96 bps today to 384.58 bps, which is approaching the Oct. 20 record of 402.03 bps. The TED spread continues to hit new cycle highs and is at the highest since June 2010. The Libor-OIS spread is still very near the widest since July 2010. The 2-Year Euro Swap spread is still very close to its recent highs, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot continues to pick up downside steam, plunging -39.08% since February 16th and -35.4% since Sept. 7th. Despite major intermediate-term headwinds, I still believe that stocks can build on recent gains over the coming weeks after a brief period of consolidation. I expect US stocks to trade modestly higher into the close from current levels on less tech sector pessimism, diminishing global growth worries, short-covering, less global debt angst and technical buying.

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