Monday, November 21, 2011

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Financial Sector Pessimism, US Debt Committee "Failure"


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 33.24 +3.88%
  • ISE Sentiment Index 101.0 +29.49%
  • Total Put/Call 1.09 +23.86%
  • NYSE Arms 2.33 +104.59%
Credit Investor Angst:
  • North American Investment Grade CDS Index 140.06 +3.15%
  • European Financial Sector CDS Index 299.46 +9.10%
  • Western Europe Sovereign Debt CDS Index 357.33 +2.05%
  • Emerging Market CDS Index 335.79 +3.25%
  • 2-Year Swap Spread 54.0 +4 bps
  • TED Spread 49.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 169.0 -3 bps
  • China Import Iron Ore Spot $147.40/Metric Tonne unch.
  • Citi US Economic Surprise Index 48.90 unch.
  • 10-Year TIPS Spread 1.91 -6 bps
Overseas Futures:
  • Nikkei Futures: Indicating -93 open in Japan
  • DAX Futures: Indicating +26 open in Germany
Portfolio:
  • Slightly Lower: On losses in my tech, retail and medical sector longs.
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 breaks convincingly below its 50-day moving average on rising Eurozone debt angst, global growth fears, financial sector pessimism, high energy prices and technical selling. On the positive side, Biotech shares are higher on the day. Oil is falling -1.1%, Gold is falling -2.5% and the UBS-Bloomberg Ag Spot Index is declining -1.25%. On the negative side, Coal, Alt Energy, Oil Service, Oil Tanker, Steel, Internet, Networking, Bank, REIT and Road & Rail shares are under significant pressure, falling more than -3.0%. Small-cap and cyclical shares are underperforming. (XLF) has also traded poorly throughout the day. Copper is falling -2.5% and lumber is falling -1.09%. The 10-year yield is falling -4 bps to 1.97%. Major Asian indices fell 1-2% on average overnight. India's Sensex continues to trade very poorly. It is already testing its Aug/Sept. lows and is now down -22.2% ytd. Major European equity indices fell 3-4% on average today. Italian shares(-28.07% ytd) were Europe's worst-performers today, falling -4.74%, as they broke down from their recent trading range and below their 50-day moving average. The Germany sovereign cds is climbing +2.22% to 97.17 bps, the France sovereign cds is climbing +3.99% to 229.17 bps, the Spain sovereign cds is gaining +2.06% to 465.93 bps, the Japan sovereign cds is gaining +3.2% to 119.27 bps, the Russia sovereign cds is soaring +10.95% to 265.50 bps and the Brazil sovereign cds is gaining +4.3% to 184.0 bps. Moreover, the European Investment Grade CDS Index is jumping +5.2% to 186.43 bps. The France sovereign cds is very near its recent all-time high and the Hungary sovereign cds is very close to its Oct. 24 record high. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is near the highest since May 2010. The FRA/OIS Spread is near the highest since May 2010. The 2yr Euro Swap Spread is at the highest since Nov. 2008. The 3M Euro Basis Swap is falling -6.85% to -138.90 bps, which is the worst since November 2008. The Libor-OIS spread is near the widest since July 2009, which is also noteworthy considering the recent equity advance off the lows. China Iron Ore Spot has plunged -23.2% since February 16th and -18.6% since Sept. 7th. Part of today's equity weakness is related to the apparent "failure" of the US debt super committee. However, even if an unexpected "successful" compromise materializes that includes massive tax hikes/spending cuts, following the highly contractionary policies of Europe, it would be viewed as a large negative by investors over the intermediate-term, in my opinion. Trading still has a somewhat complacent feel to it as stocks surged off the morning lows, accompanied by below average volume, despite the ongoing significant deterioration in European credit gauges. I still think the risk in equities remains substantial unless a positive catalyst emerges from Europe very soon. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, US debt Super Committee concerns, rising global growth fears, financial sector pessimism, more shorting, high energy prices and technical selling.

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