Thursday, October 06, 2011

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Less Financial/Tech Sector Pessimism, Short-Covering, Technical Buying

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Slightly Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 37.01 -2.12%
  • ISE Sentiment Index 88.0 -31.78%
  • Total Put/Call 1.21 +13.08%
  • NYSE Arms .53 +9.15%
Credit Investor Angst:
  • North American Investment Grade CDS Index 142.12 -2.99%
  • European Financial Sector CDS Index 236.16 -7.64%
  • Western Europe Sovereign Debt CDS Index 338.33 -2.09%
  • Emerging Market CDS Index 349.79 -3.80%
  • 2-Year Swap Spread 39.0 unch.
  • TED Spread 39.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 173.0 +9 bps
  • China Import Iron Ore Spot $170.0/Metric Tonne +.24%
  • Citi US Economic Surprise Index -14.70 +2.1 points
  • 10-Year TIPS Spread 1.89 +9 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +49 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, 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 recent gains with decent volume on less Eurozone debt angst, short-covering, bargain-hunting, technical buying, less tech/financial sector pessimism and better economic data. On the positive side, Alt Energy, Oil Service, Ag, Steel, Computer, Networking, Bank, Hospital, Gaming and Airline shares are especially strong, rising more than +2.5%. Cyclicals and Small-Caps are outperforming. Tech/financial shares have also traded well throughout the day. Copper is soaring +5.39%, the Bloomberg-UBS Ag Spot Index is declining -.14% and Lumber is gaining +4.59%. The 10-year yield is rising +10 bps to 1.99%. The Germany sovereign cds is falling -10.46% to 97.0 bps, the France sovereign cds is falling -6.9% to 173.17 bps, the China sovereign cds is falling -6.1% to 179.99 bps, the Japan sovereign cds is falling -12.6% to 136.90 bps, the Russia sovereign cds is falling -7.12% to 291.33 bps, the UK sovereign cds is falling -6.69% to 89.50 bps and the Spain sovereign cds is falling -9.2% to 342.17 bps. Major Asian indices surged 3-5% overnight. Major European equity indexes surged 3-4% today. On the negative side, Oil Tanker, Telecom and Coal shares are lower-to-flat on the day. Oil is gaining +3.6% and gold is rising +.77%. Rice is still close to its multi-year high, rising +25.5% in about 12 weeks. The Libor-OIS Spread is rising +1 bps to 30.0 bps, which is the highest since July 2010. As well, the TED and 2-Year Swap Spreads haven't come in at all, which is 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. Ukraine shares fell another -.67% today, notwithstanding sharp gains in the rest of Europe, and are now down -46.5% ytd. Various global credit angst gauges continue to trend higher despite recent pullbacks, which remains a large negative. Investors seem to have gotten a bit ahead of themselves with respect to the prospects for a "solution" in Europe, in my opinion. We could see some equity weakness resurface over the next couple of days after tomorrow morning's likely in-line-to-better jobs report boosts stocks further. 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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