Wednesday, December 07, 2011

Stocks Reversing Slightly Higher into Final Hour on More Eurozone Rumors, Short-Covering, Seasonality, Investor Performance Angst

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Declining
  • Volume: Light
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 29.46 +4.76%
  • ISE Sentiment Index 133.0 -16.88%
  • Total Put/Call .93 +10.71%
  • NYSE Arms 1.06 +3.72%
Credit Investor Angst:
  • North American Investment Grade CDS Index 122.24 -1.30%
  • European Financial Sector CDS Index 257.36 +1.19%
  • Western Europe Sovereign Debt CDS Index 336.17 +1.82%
  • Emerging Market CDS Index 283.38 -1.83%
  • 2-Year Swap Spread 42.0 -1 bp
  • TED Spread 54.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -109.0 +8 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 178.0 -5 bps
  • China Import Iron Ore Spot $139.40/Metric Tonne -.14%
  • Citi US Economic Surprise Index 74.90 -.2 point
  • 10-Year TIPS Spread 2.05 -4 bps
Overseas Futures:
  • Nikkei Futures: Indicating -70 open in Japan
  • DAX Futures: Indicating +7 open in Germany
  • Slightly Higher: On gains in my retail sector longs and index hedges
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 reverses morning losses and moves to session highs back near its 200-day moving average despite recent gains, rising Eurozone debt angst, rising global growth fears and high energy prices. On the positive side, Airline, I-Banking and Drug shares are especially strong, rising more than +.50%. (XLF) has traded well throughout the day. The UBS-Bloomberg Ag Spot Index is falling -1.44%, lumber is rising +.43% and oil is falling -.4%. On the negative side, Coal, Oil Tanker, Oil Service, Steel, Homebuilding, Construction and Networking shares are under pressure, falling more than -1.0%. Copper is falling -.6% and gold is gaining +.8%. The 10-Year Yield is falling to session lows despite the equity reversal higher, dropping -6 bps to 2.03%. 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 Libor-OIS spread is the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -27.4% since February 16th and -23.0% since Sept. 7th. The Shanghai Composite rose just +.29% overnight as it continues to trade very poorly despite investor optimism over their recent RRR cut and global equity rally. Brazil shares fell -1.5% today and are now down -15.4% ytd. US stock volume remains poor and leadership is of fairly low-quality again. Breadth is also lacking. The S&P 500 is back near its 200-day moving average and near the high-end of its recent range. Overall, considering how many times Europe has disappointed the market with its debt crisis "solution" deadlines over the last couple of years, investors still seem very complacent ahead of the Dec. 9 summit. Moreover, any near-term market surge from current levels as a result of another perceived eurozone debt solution will likely falter over the coming weeks as global economic growth continues to disappoint. I expect US stocks to trade mixed-to-higher into the close from current levels on a bounce in the Euro, short-covering, technical buying, investor performance angst and seasonality.

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