Friday, October 14, 2011

Stocks Surging into Final Hour on Euro Bounce, Short-Covering, Diminishing Global Growth Fears

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Light
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 28.95 -5.70%
  • ISE Sentiment Index 158.0 +31.67%
  • Total Put/Call 1.02 -.97%
  • NYSE Arms .79 -34.48%
Credit Investor Angst:
  • North American Investment Grade CDS Index 129.74 -2.97%
  • European Financial Sector CDS Index 223.65 -2.42%
  • Western Europe Sovereign Debt CDS Index 342.17 +.16%
  • Emerging Market CDS Index 298.08 -3.76%
  • 2-Year Swap Spread 39.0 +1 bp
  • TED Spread 39.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .01% unch.
  • Yield Curve 197.0 +7 bps
  • China Import Iron Ore Spot $157.50/Metric Tonne -1.69%
  • Citi US Economic Surprise Index 2.20 +2.8 points
  • 10-Year TIPS Spread 1.98 +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating +99 open in Japan
  • DAX Futures: Indicating +19 open in Germany
  • Higher: On gains in my Tech, Retail and Medical sector longs
  • Disclosed Trades: Covered all of my (QQQ)/(IWM) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on recent gains and sits right at the upper end of its 2-month range, despite Eurozone debt angst, rising food/energy prices and emerging markets inflation fears. On the positive side, Coal, Energy, Oil Service, Networking, Internet and Oil Tanker shares are especially strong, rising more than +2.5%. Cylical stocks are relatively strong and tech shares have outperformed throughout the day. Major European equity indices finished 1-2% higher on teh day. Copper is rising +3.4% and Lumber is gaining +2.1%. The Russia sovereign cds is falling -3.75% to 239.33 bps and the Brazil sovereign cds is declining -3.2% to 152.50 bps. On the negative side, Hospital, Airline, Telecom and Biotech shares are flat-to-lower on the day. Oil is rising +3.4% and the UBS-Bloomberg Ag Spot Index is rising +1.50%. Rice is still close to its multi-year high, rising +31.0% in about 13 weeks. The Germany sovereign cds is gaining +1.06% to 95.0 bps, the France sovereign cds is rising +4.16% to 183.50 bps, the Spain sovereign cds is gaining +2.58% to 379.50 bps, the Italy sovereign cds is rising +1.42% to 451.0 bps, the Ireland sovereign cds is rising +2.25% to 758.33 bps, the Japan sovereign cds is rising +3.0% to 119.0 bps, the China sovereign cds is gaining +1.78% to 146.72 bps and the UK sovereign cds is rising +4.07% to 93.0 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. Hong Kong shares fell -1.4% last night and are now down -19.7% ytd. China Iron Ore Spot is picking up downside steam, falling -17.9% since February 16th. Investors are continuing to ignore quite a bit of bad news again today, which is a positive. The S&P 500 is still near the top end of its range over the last 2 months. I would expect to see stocks trade mixed-to-lower next week given recent gains, technical resistance and still developing global economic headwinds. One of my longs, (GOOG), had an excellent earnings report and the shares are surging almost +6%. While the stock is short-term overbought, I still believe the shares will substantially outperform the market over the intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on a bounce in the euro, less tech sector pessimism, short-covering and diminishing global growth fears.

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