Monday, October 10, 2011

Stocks Surging into Afternoon on Declining Eurozone Debt Angst, Less Financial Sector Pessimism, Short-Covering, Technical Buying

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Every Sector Rising
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 34.17 -5.61%
  • ISE Sentiment Index 123.0 +86.36%
  • Total Put/Call 1.25 +12.61%
  • NYSE Arms .78 -52.43%
Credit Investor Angst:
  • North American Investment Grade CDS Index 137.30 -.73%
  • European Financial Sector CDS Index 221.01 -7.28%
  • Western Europe Sovereign Debt CDS Index 333.83 -1.83%
  • Emerging Market CDS Index 343.16 -.84%
  • 2-Year Swap Spread 38.0 -2 bps
  • TED Spread 39.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 178.0 unch.
  • China Import Iron Ore Spot $166.50/Metric Tonne -2.06%
  • Citi US Economic Surprise Index -3.10 +4.4 points
  • 10-Year TIPS Spread 1.94 unch.
Overseas Futures:
  • Nikkei Futures: Indicating +178 open in Japan
  • DAX Futures: Indicating +19 open in Germany
  • Higher: On gains in my Tech, Retail, Biotech and Medical sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 breaks above its downward sloping 50-day moving average on less Eurozone debt angst, less financial sector pessimism, diminishing global growth worries, short-covering and bargain-hunting. On the positive side, Coal, Oil Tanker, Energy, Oil Service, Steel, Bank, Homebuilding and Gaming shares are especially strong, rising more than +4.0%. Cyclical and Small-cap shares have outperformed throughout the day. As well, (XLF) is trading well. Copper is rising +3.09% and Lumber is rising +2.77%. The Germany sovereign cds is falling -4.3% to 94.17 bps, the Ireland sovereign cds is falling -3.36% to 678.33 bps, the Russia sovereign cds is declining -3.16% to 278.94 bps and the Israel sovereign cds is falling -4.2% to 174.91 bps. Major European equity indices surged 2-3% today. On the negative side, Education, Telecom and Utility shares are underperforming, rising less than 2.0%. Oil is gaining +3.5%, the UBS-Bloomberg Ag Spot Index is gaining +1.97% and Gold is rising +2.24%. Rice is still close to its multi-year high, rising +24.0% in about 13 weeks. The Belgium sovereign cds is rising +.28% to 284.50 bps and the Brazil sovereign cds is rising +.89% to 179.97 bps. The Libor-OIS Spread is unch. at 31.0 bps, which is the highest since July 2010. The FRA/OIS Spread is unch. at 54.0 bps, which is also the highest since July 2010. As well, the TED spread hasn't come in at all, 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, which was closed during last week's global rally, re-opened and declined -.6% overnight. It is down -16.5% ytd. Asia still appears to be more of a problem than investors currently perceive. As well, I still believe stocks have gotten a bit ahead of themselves with respect to the prospects for a "solution" in Europe. Moreover, even if another "kick the can" solution is imminent, the economies in the region will likely continue to deteriorate as the massive tax hikes and spending cuts intensify, which will further exacerbate their debt issues over the longer-term. However, in the short-term, given high levels of investor pessimism and the S&P 500's technical improvement, more gains are likely. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, emerging markets inflation fears, rising food/energy prices, more shorting and global debt angst.

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