Friday, December 09, 2011

Stocks Higher into Final Hour on Euro Bounce, Short-Covering, Less Financial Sector Pessimism, Seasonality

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 27.06 -11.54%
  • ISE Sentiment Index 160.0 +58.42%
  • Total Put/Call 1.27 +32.29%
  • NYSE Arms .58 -89.29%
Credit Investor Angst:
  • North American Investment Grade CDS Index 122.59 -1.74%
  • European Financial Sector CDS Index 286.01 +2.69%
  • Western Europe Sovereign Debt CDS Index 368.17 +2.77%
  • Emerging Market CDS Index 293.60 -2.45%
  • 2-Year Swap Spread 43.0 +1 bp
  • TED Spread 54.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -125.50 -9.0 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 183.0 +8 bps
  • China Import Iron Ore Spot $139.50/Metric Tonne +.07%
  • Citi US Economic Surprise Index 78.0 +1.9 points
  • 10-Year TIPS Spread 2.03 +5 bps
Overseas Futures:
  • Nikkei Futures: Indicating +91 open in Japan
  • DAX Futures: Indicating +13 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: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 rebounds back near its 200-day moving average despite rising Eurozone debt angst, rising global growth fears, some earnings jitters and rising energy prices. On the positive side, Coal, Disk Drive, Homebuilding, Networking and Steel shares are especially strong, rising more than +2.75%. Small-caps are outperforming. (XLF) has traded well throughout the day. The UBS-Bloomberg Ag Spot Index is falling -1.9%, Lumber is rising +2.88% and Copper is gaining +2.4%. The 10-year Yield is rising +8 bps to 2.05%. Major European stock indices rose 1-3% today. The Germany sovereign cds is falling -4.79% to 99.0 bps, the Belgium sovereign cds is falling -2.28% to 315.67 bps and the France sovereign cds is falling -1.98% to 209.33 bps. On the negative side, Ag, Telecom and Retail shares are flat-to-slightly higher on the day. Oil is rising +1.62% and Gold is rising +.44%. The Italy sovereign cds is rising +1.82% to 532.50 bps, the China sovereign cds is gaining +1.68% to 139.41 bps, the Japan sovereign cds is jumping +6.7% to 128.04 bps, the Russia sovereign cds is gaining +3.78% to 263.0 bps, the Israel sovereign cds is climbing +3.6% to 200.35 bps and the Brazil sovereign cds is gaining +4.4% to 150.28 bps. The TED spread continues to trend higher and is at the highest since June 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -7.73% to -125.50 bps. The Libor-OIS spread is very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -27.3% since February 16th and -22.9% since Sept. 7th. Asian indices shrugged off the European news as it trickled out overnight and finished materially lower. Hong Kong shares closed near session lows despite the better China CPI/PPI data, falling -2.7%, and are now down -19.3% ytd. There are a number of red flags today. European credit gauges are performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand. As well, equity index volume is light and leadership is mostly found in lower-quality stocks. While I still think equities can build on today's gains over the short-term, I still suspect this rally will be less robust and sustainable than many expect due to excess bullish sentiment and the ongoing deterioration in the global economy. I expect US stocks to trade mixed-to-higher into the close from current levels on a bounce in the euro, less financial sector pessimism, short-covering, seasonality, better US economic data and investor performance angst.

No comments: