Tuesday, December 13, 2011

Stocks Reversing Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Rising Energy Prices, Financial/Tech Sector Pessimism

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 25.83 +.62%
  • ISE Sentiment Index 117.0 +82.81%
  • Total Put/Call 1.17 +32.95%
  • NYSE Arms 1.66 -24.63%
Credit Investor Angst:
  • North American Investment Grade CDS Index 124.68 -1.06%
  • European Financial Sector CDS Index 309.67 +1.16%
  • Western Europe Sovereign Debt CDS Index 382.73 +.93%
  • Emerging Market CDS Index 301.54 -.60%
  • 2-Year Swap Spread 46.0 +1 bp
  • TED Spread 54.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -140.55 -12.75 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 172.0 -7 bps
  • China Import Iron Ore Spot $137.30/Metric Tonne -.72%
  • Citi US Economic Surprise Index 75.0 -2.8 points
  • 10-Year TIPS Spread 2.01 -4 bps
Overseas Futures:
  • Nikkei Futures: Indicating -70 open in Japan
  • DAX Futures: Indicating -52 open in Germany
  • Slightly Higher: On gains in my index hedges and emerging markets shorts
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 reverses morning gains and trades to session lows on rising Eurozone debt angst, rising global growth fears, some earnings jitters, technical selling, profit-taking, more shorting and rising energy prices. On the positive side, Utility and Drug shares are slightly higher on the day. Gold is down -2.2%. Weekly retail sales rose +3.0% this week, which is still ok, but down from a weekly average of +4.6% gains in October. On the negative side, Coal, Alt Energy, Oil Service, Steel, Semi, Networking, Bank, I-Bank, Hospital, Construction, Homebuilding, Retail, Education, and Airline shares are under substantial pressure, falling more than -2.0%. (XLF) and (XLK) have traded poorly throughout the day. Cyclical and small-cap shares are substantially underperforming. Copper is falling -2.1%, the UBS-Bloomberg Ag Spot Index is rising +.7%, oil is gaining +1.4% and Lumber is dropping -1.4%. The 10-year yield is falling -6 bps to 1.95%. The Italy sovereign cds is rising +.6% to 568.17 bps, the France sovereign cds is rising +2.44% to 234.33 bps, the Japan sovereign cds is gaining +2.72% to 132.61 bps, the German sovereign cds is gaining +.37% to 103.83 bps. Moreover, the European Investment Grade CDS Index is rising +1.94% to 177.76 bps. The Western Europe Sovereign CDS Index is making another new all-time high today. 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 -10.01% to -140.55 bps, which is now back to Nov. 25th levels. 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 -28.5% since February 16th and -24.1% since Sept. 7th. The Citi Asia-Pacific Economic Surprise Index fell another -.2 point today to -25.50, which is the worst since April 2009. Asian equities continue to trade very poorly. The Shanghai Composite fell another -1.9% overnight to the lowest level since March 2009 and is now down -20.0% ytd. Major European equity indices reversed morning gains and finished in negative territory near session lows. European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand. Trading still had an overall complacent feel this morning given the action overseas. This afternoon's sharp reversal lower in stocks, after any Fed catalyst failed to materialize, may indicate that investors are shifting from a year-end performance chase mentality to "risk-off mode" again, given how badly some key credit gauges in Europe are deteriorating and intensifying worries over global growth. I still remain very cautious on the intermediate-term. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, financial/tech sector pessimism, profit-taking, technical selling, rising energy prices and more shorting.

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