Wednesday, December 21, 2011

Stocks Rebounding into Final Hour on Less Financial Sector Pessimism, Short-Covering, Seaonal Strength, Window Dressing

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 22.2 -4.39%
  • ISE Sentiment Index 178.0 +60.36%
  • Total Put/Call 1.14 -9.30%
  • NYSE Arms .78 +358.23%
Credit Investor Angst:
  • North American Investment Grade CDS Index 126.99 +.3%
  • European Financial Sector CDS Index 286.54 +.84%
  • Western Europe Sovereign Debt CDS Index 371.92 +1.7%
  • Emerging Market CDS Index 310.30 -.62%
  • 2-Year Swap Spread 47.0 -1 bp
  • TED Spread 57.0 +1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -127.50 -11.0 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 170.0 +3 bps
  • China Import Iron Ore Spot $134.80/Metric Tonne +2.12%
  • Citi US Economic Surprise Index 70.50 -3.4 points
  • 10-Year TIPS Spread 2.05 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating -9 open in Japan
  • DAX Futures: Indicating +32 open in Germany
  • Slightly Lower: On losses in my Tech and Retail sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 moves back to the flatline and trades to session highs, despite rising Eurozone debt angst, rising global growth fears, higher energy prices, more tech sector pessimism and US tax hike concerns. On the positive side, Energy, Utility, Hospital and Education shares are especially strong, rising more than +1.0%. (XLF) has outperformed throughout the day. Copper is gaining +.67%. The 10-year yield is rising +5 bps to 1.97%. The Europe Investment Grade CDS Index is down -1.73% to 171.56 bps. On the negative side, Internet, Software, Disk Drive, Networking, Computer Service and Airline shares are under meaningful pressure, falling more than -1.5%. The UBS-Bloomberg Ag Spot Index is up +.58%, Oil is up +1.5% and Lumber is falling -1.7%. The Germany sovereign cds is gaining +.74% to 105.5 bps, the UK sovereign cds is gaining +.91% to 97.83 bps, the Brazil sovereign cds is jumping +3.8% to 167.21 bps, the France sovereign cds is rising +.95% to 224.67 bps and the Belgium sovereign cds is rising +1.05% to 319.33 bps. The Italian/German 10Y Yield Spread is rising +4.2% to 485.37 bps. The Western Europe Sovereign CDS Index is still very near its all-time high. The TED spread continues to trend higher and is very near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is very near the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is plunging -9.5% to -127.50 bps, which is back to late-Nov. levels. The Libor-OIS spread is rising to the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -29.8% since February 16th and -25.5% since Sept. 7th. The China Corporate Blended Spread Index remains very close to another technical breakout. The Citi Asia Economic Surprise Index is unch. today at -27.80, the lowest since April 2009. Major Asian indices surged 2-4% overnight, however the Shanghai Composite reversed opening gains and closed near session lows, down -1.12%. This index is back near a multi-year low, down -22.0% ytd. European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand, which remains a large red flag. According to, this would be only the 2nd time in the past decade that the S&P 500 rose on a day in which the Nasdaq 100 fell over -1.5%. The other day this happened was 7/18/08. Moreover, given the tech sector's importance to the overall economy and (ORCL)'s very disappointing earnings report, a positive day for the S&P 500 is even more surprising. Year-end window-dressing, short-covering, better US economic data and seasonal strength continue to help out short-term. Credit gauges are still at highly stressed levels(and in many cases worsening), today’s rally was led again by many of this year’s worst-performing stocks, concerns over Asia are still intensifying and volume remains light, which does not bode well for a sustainable advance. I expect US stocks to trade modestly higher into the close from current levels on better US economic data, short-covering, bargain-hunting, less financial sector pessimism, year-end window dressing, seasonal strength and technical buying.

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