Tuesday, October 11, 2011

Stocks Slightly Higher into Final Hour on Bounce in the Euro, Short-Covering, Technical Buying, Less Tech Sector Pessimism

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 33.14 +.18%
  • ISE Sentiment Index 128.0 +14.3%
  • Total Put/Call 1.49 +24.17%
  • NYSE Arms .87 +94.28%
Credit Investor Angst:
  • North American Investment Grade CDS Index 134.97 -1.69%
  • European Financial Sector CDS Index 227.09 +.89%
  • Western Europe Sovereign Debt CDS Index 336.33 +.69%
  • Emerging Market CDS Index 331.90 -3.26%
  • 2-Year Swap Spread 38.0 unch.
  • TED Spread 40.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 185.0 +7 bps
  • China Import Iron Ore Spot $164.40/Metric Tonne -1.26%
  • Citi US Economic Surprise Index -2.50 +.6 point
  • 10-Year TIPS Spread 1.96 +2 bps
Overseas Futures:
  • Nikkei Futures: Indicating -18 open in Japan
  • DAX Futures: Indicating +8 open in Germany
  • Higher: On gains in my Tech, Biotech 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 consolidates recent gains above its 50-day moving average despite Eurozone debt angst, rising food prices, emerging markets inflation fears and real estate sector weakness. On the positive side, Coal, Oil Tanker, Education, Airline, Computer and Ag shares are especially strong, rising more than +1.25%. Cyclical and Small-cap shares have outperformed throughout the day again. As well, tech shares have traded relatively well throughout the day. Lumber is rising +.71% and Gold is falling -.61%. The China sovereign cds is falling -3.37% to 162.28 bps, the Japan sovereign cds is falling -9.38% to 111.91 bps, the Russia sovereign cds is falling -3.33% to 269.66 bps and the UK sovereign cds fell -3.48% to 87.17 bps. Weekly retail sales rose +4.8% versus a +4.4% gain the prior week. On the negative side, Utility, REIT and Telecom shares are under pressure, falling more than 1.0%. (IYR) has traded poorly throughout the day. The UBS-Bloomberg Ag Spot Index is jumping +2.8% and Copper is falling -2.2%. Rice is still close to its multi-year high, rising +27.0% in about 13 weeks. The Ireland sovereign cds is rising +2.46% to 695.0 bps and the Belgium sovereign cds is climbing +3.1% to 293.33 bps. The Libor-OIS Spread is unch. at 31.0 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 Shanghai Composite only gained +.16% overnight, finishing near session lows, despite a huge global equity rally and their govt. attempting to prop up bank shares with purchases. Moreover, the China Development Bank Corp. cds jumped +7.23% to 336.68 bps. The Shanghai Property Index fell -.63%. India's Sensex also fell -.13% overnight. I still believe that in the short-term, given high levels of investor pessimism and the S&P 500's technical improvement, more stock gains are likely. I still believe that over the longer-term the massive tax hikes and spending cuts in Europe will further result in a meaningful deterioration in the region's economies which will then lead to an escalation in the debt crisis over the intermediate-term. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, emerging markets inflation fears, rising food prices, more shorting and global debt angst.

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