Wednesday, October 05, 2011

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Short-Covering, Bargain-Hunting, Better Economic Data

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 38.53 -5.66%
  • ISE Sentiment Index 129.0 +61.2%
  • Total Put/Call 1.11 -5.13%
  • NYSE Arms .89 +239.0%
Credit Investor Angst:
  • North American Investment Grade CDS Index 146.50 -3.48%
  • European Financial Sector CDS Index 255.81 -7.01%
  • Western Europe Sovereign Debt CDS Index 344.0 -2.48%
  • Emerging Market CDS Index 364.27 -3.34%
  • 2-Year Swap Spread 39.0 unch.
  • TED Spread 38.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 164.0 +10 bps
  • China Import Iron Ore Spot $169.60/Metric Tonne -.99%
  • Citi US Economic Surprise Index -16.60 +5.3 points
  • 10-Year TIPS Spread 1.80 +4 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +140 open in Japan
  • DAX Futures: Indicating +21 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, then added some back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on yesterday's sharp reversal higher with volume on less Eurozone debt angst, short-covering, bargain-hunting, technical buying, less tech sector pessimism and better economic data. On the positive side, Coal, Alt Energy, Energy, Oil Service, Ag, Steel, Internet, Computer, Networking, Education, Homebuilding, Construction and Biotech shares are especially strong, rising more than +3.0%. Cyclicals are substantially outperforming. Tech shares have also traded well throughout the day again. Copper is rising +1.0% and Lumber is gaining +1.34%. The 10-year yield is rising +8 bps to 1.9%. The Germany sovereign cds is falling -9.1% to 108.33 bps, the France sovereign cds is falling -7.15% to 186.0 bps, the Russia sovereign cds is falling -7.2% to 313.67 bps, the UK sovereign cds is falling -6.7% to 95.5 bps, the Israel sovereign cds is falling -9.1% to 192.69 bps and the Brazil sovereign cds is falling -11.3% to 200.32 bps. Major European equity indexes surged 3-5% today. On the negative side, Oil Tanker, Telecom, REIT and Restaurant shares are lower on the day. The UBS-Bloomberg Ag Spot Index is rising +1.2%, oil is gaining +3.0% and gold is rising +1.18%. Rice is still close to its multi-year high, rising +26.0% in about 12 weeks. The Spain sovereign cds is rising +.71% to 376.83 bps, the Japan sovereign cds is rising +1.59% to 156.7 bps and the Hungary sovereign cds is rising +1.9% to 532.60 bps. The Western Europe Sovereign CDS Index, the European Financial Sector CDS Index and the Asia-Pacific Sovereign CDS Index are still near their records. The China sovereign cds is also still very near the highest level since March 2009. As well, the China Blended Corporate Spread Index, which has been moving higher in a parabolic fashion, is still very close to a multi-year high at 1,025.0 bps. Despite the sharp gains in US stocks during yesterday's final hour, Asian shares were mostly weaker overnight. Korea fell another -2.3% and is now down -18.7% ytd. The recent severe weakness in Korean equities is a bit odd given the extreme strength in US tech shares. As well, Ukraine shares fell another -1.8% and are now down -46.2% ytd. Various global credit angst gauges continue to trend higher despite today's pullbacks, which remains a large negative. Recent stock gains have been mainly the result of a renewed sense of optimism regarding the situation in Europe. If another "kick the can" solution in Europe is forthcoming, stocks should build on recent gains over the coming weeks, however a test of the lows is likely if a solution does not materialize soon. I expect US stocks to trade modestly higher into the close from current levels on less Eurozone debt angst, better economic data, short-covering, bargain-hunting, technical buying and less financial/tech sector pessimism.

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