Thursday, October 13, 2011

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Technical Selling, Rising Financial Sector Pessimism, Global Growth Fears

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 30.84 -1.25%
  • ISE Sentiment Index 116.0 +23.40%
  • Total Put/Call 1.08 -16.28%
  • NYSE Arms 1.01 +37.98%
Credit Investor Angst:
  • North American Investment Grade CDS Index 133.71 +3.31%
  • European Financial Sector CDS Index 227.32 +1.68%
  • Western Europe Sovereign Debt CDS Index 341.33 +.98%
  • Emerging Market CDS Index 308.90 +1.28%
  • 2-Year Swap Spread 38.0 +1 bp
  • TED Spread 39.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .01% unch.
  • Yield Curve 190.0 -3 bps
  • China Import Iron Ore Spot $160.20/Metric Tonne -1.11%
  • Citi US Economic Surprise Index -.60 +.9 point
  • 10-Year TIPS Spread 1.94 -5 bps
Overseas Futures:
  • Nikkei Futures: Indicating -9 open in Japan
  • DAX Futures: Indicating +48 open in Germany
  • Higher: On gains in my Tech, Retail and Biotech sector longs
  • Disclosed Trades: Added to my (QQQ)/(IWM) hedges and to my (EEM) short, then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 consolidates recent gains, despite rising Eurozone debt angst, rising financial sector pessimism, technical selling, rising food prices and global growth fears. On the positive side, Disk Drive, Biotech, Airline and Restaurant shares are especially strong, rising more than +1.0%. Tech shares have outperformed throughout the day. Gold is falling -.66% and oil is falling -.7%. The Israel sovereign cds is falling -3.09% to 163.38 bps and the US sovereign cds is declining -4.5% to 46.35 bps. On the negative side, Defense, Bank, HMO, Insurance, REIT, Gaming, Education and Road & Rail shares are under pressure, falling more than 1.0%. (XLF) has traded poorly throughout the day. Lumber is falling -2.66%, copper is down -2.02% and the UBS-Bloomberg Ag Spot Index is rising +1.09%. Rice is still close to its multi-year high, rising +29.5% in about 13 weeks. The Germany sovereign cds is gaining +5.22% to 94.0 bps, the France sovereign cds is rising +6.02% to 176.17 bps, the Spain sovereign cds is gaining +3.76% to 369.55 bps, the Italy sovereign cds is rising +4.83% to 444.67 bps, the Portugal sovereign cds is rising +3.74% to 1,137.67, the Ireland sovereign cds is rising +4.46% to 741.67 bps, the Belgium sovereign cds is gaining +6.54% to 307.0 bps and the UK sovereign cds is rising +6.91% to 90.17 bps. The Libor-OIS Spread is still at 32.0 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 despite their recent pullbacks. Major European equity indices fell 1-3% today. China Iron Ore Spot is picking up downside steam, falling -16.5% since February 16th. The AAII % Bulls jumped to 39.77 this week, while the % Bears fell to 36.4, which is a large negative given the macro backdrop and the fact that the average stock is down -20.1% in less than 6 months. Investors are ignoring a lot of bad news today, which is a positive. The S&P 500 is still near the top end of its range over the last 2 months. I still 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, rising Eurozone debt angst, rising financial sector pessimism and global growth fears.

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