Thursday, December 15, 2011

Stocks Slightly Higher into Final Hour on Better US Economic Data, Short-Covering, Seasonality, Euro Bounce

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Light
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 25.22 -3.15%
  • ISE Sentiment Index 106.0 +30.86%
  • Total Put/Call 1.24 +14.81%
  • NYSE Arms .94 -32.76%
Credit Investor Angst:
  • North American Investment Grade CDS Index 127.97 -2.31%
  • European Financial Sector CDS Index 305.25 -3.23%
  • Western Europe Sovereign Debt CDS Index 382.68 -1.65%
  • Emerging Market CDS Index 314.24 -1.20%
  • 2-Year Swap Spread 48.0 unch.
  • TED Spread 56.0 +1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -140.0 +7.0 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 167.0 +1 bp
  • China Import Iron Ore Spot $133.80/Metric Tonne -.74%
  • Citi US Economic Surprise Index 71.90 -3.1 points
  • 10-Year TIPS Spread 1.93 -2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +25 open in Japan
  • DAX Futures: Indicating -11 open in Germany
  • Slightly Higher: On gains in my Medical, Retail and Biotech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 bounces back right near its 50-day moving average this morning despite Eurozone debt angst, rising global growth fears and tech sector pessimism. On the positive side, Utility, Drug, Hospital, HMO, Homebuilding, REIT, Education and Airline shares are especially strong, rising more than +1.25%. Small-caps are outperforming. Gold is down -.4%, Lumber is rising +2.6% and Oil is dropping -1.4%. Oil traded very poorly again today as it failed to bounce with the market on some good economic news and is at session lows below its 50 and 200-day moving averages. The Germany sovereign cds is falling -3.2% to 102.50, the France sovereign cds is falling - 5.09% to 225.0 bps, the Italy sovereign cds is falling -2.09% to 561.50 bps and the Spain sovereign cds is down -2.7% to 435.17 bps. On the negative side, Coal, Oil Service and Software shares are under pressure, falling more than -.5%. (XLK) has traded poorly again throughout the day. Copper is falling -.5%. The 10-year yield is flat at 1.91% despite some better economic data and today's stock bounce. The China sovereign cds is climbing +1.8% to 148.61 bps and the Brazil sovereign cds is up +1.0% to 160.0 bps. Moreover, the Asia-Pacific Sovereign CDS Index is up +2.0% to 159.0 bps. The Western Europe Sovereign CDS Index is still very near its all-time high. The TED spread continues to trend higher and is at 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 rising +4.8% to -140.0 bps, which is back to Nov. 24th 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 -30.3% since February 16th and -26.1% since Sept. 7th. The China Corporate Blended Spread Index is rising +1.4% today to 792.0 bps, which is very close to another technical breakout. The Citi Asia-Pacific Economic Surprise Index is at -25.4, which is right at the worst since April 2009. Asian equities continue to trade very poorly. The Shanghai Composite fell another -2.1% overnight and is down -22.3% ytd(lowest since March 2009). Taiwan shares fell -2.3% and are down -24.6% ytd(testing late Nov. lows). Brazil's Bovespa fell -.6% today and is down -18.7% 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. The AAAII % Bulls rose to 40.2 this week, while the % Bears fell to 33.6%, which is a negative given the still developing significant macro headwinds. Trading still has an overall complacent feel as volume remains poor, leadership is lacking and each push lower is met by sloppy dip-buying. The market still appears to want to go lower short-term before any year-end rally materializes. I am still very cautious on the intermediate-term. This is likely due to year-end window-dressing and seasonality. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, rising global growth fears, tech sector pessimism, technical selling and more shorting.

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