Monday, December 05, 2011

Stocks Rising into Final Hour on Falling Eurozone Debt Angst, Less Financial Sector Pessimism, Short-Covering, Seasonality


Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Rising
  • Volume: Light
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 27.76 +.87%
  • ISE Sentiment Index 99.0 +25.32%
  • Total Put/Call 1.0 +2.04%
  • NYSE Arms .57 -47.49%
Credit Investor Angst:
  • North American Investment Grade CDS Index 120.69 -2.85%
  • European Financial Sector CDS Index 250.68 -7.30%
  • Western Europe Sovereign Debt CDS Index 325.17 -4.22%
  • Emerging Market CDS Index 288.60 -3.17%
  • 2-Year Swap Spread 43.0 -2 bps
  • TED Spread 54.0 +1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -122.0 +4 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 177.0 -2 bps
  • China Import Iron Ore Spot $139.80/Metric Tonne +.72%
  • Citi US Economic Surprise Index 77.20 -8.5 points
  • 10-Year TIPS Spread 2.07 +2 bps
Overseas Futures:
  • Nikkei Futures: Indicating -55 open in Japan
  • DAX Futures: Indicating -40 open in Germany
Portfolio:
  • Higher: On gains in my tech, retail and medical sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges, then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is just mildly bullish, as the S&P 500 reverses sharp morning gains near its 200-day moving average again and moves near session lows on Eurozone debt angst, rising global growth fears, technical selling, profit-taking, more shorting and high energy prices. On the positive side, Oil Service, Steel, Software, Bank, I-Banking, Hospital, Homebuilding and Airline shares are especially strong, rising more than +1.75%. Small-caps and cyclicals are outperforming. (XLF) has outperformed throughout the day. Lumber is gaining +1.5% and Gold is falling -1.4%. The France sovereign cds is falling -7.2% to 179.67 bps, the Spain sovereign cds is falling -8.58% to 351.17 bps, the Belgium sovereign cds is falling -7.8% to 270.0 bps and the Italy sovereign cds is falling -5.75% to 429.83 bps. On the negative side, Ag, Biotech, Drug, HMO and Education shares are lower on the day. Copper is falling -.96%. The 10-year yield is flat on the day at 2.02%, despite today's equity advance. 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 very near the highest since March 2009. The 3M EUR/USD Cross-Currency Basis Swap is still near the worst since November 2008. The Libor-OIS spread is the widest since June 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -27.1% since February 16th and -22.8% since Sept. 7th. The Shanghai Composite fell another -1.2% overnight and is down -17.0% ytd. As well, India and Russia shares fell -.25% and -.4% today, respectively. Volume remains poor and leadership is of fairly low-quality again. Breadth is decent. The S&P 500 is right near its 200-day moving average and near the high-end of its recent range. The market is coming under pressure this afternoon for the 2nd consecutive day mainly on more negative headlines out of Europe. I still believe investors will need to see some concrete evidence that the “kick-the-can” Euro crisis solution that is currently being priced into equities has more support from key Eurozone officials before any further meaningful stock surge into year-end. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, global growth fears, profit-taking, technical selling and more shorting.

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