Friday, December 16, 2011

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

Broad Market Tone:

  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 24.87 -.96%
  • ISE Sentiment Index 77.0 -29.36%
  • Total Put/Call 1.20 -1.64%
  • NYSE Arms .96 +5.0%
Credit Investor Angst:
  • North American Investment Grade CDS Index 128.69 +.56%
  • European Financial Sector CDS Index 305.09 -.38%
  • Western Europe Sovereign Debt CDS Index 379.08 -.93%
  • Emerging Market CDS Index 313.62 -.18%
  • 2-Year Swap Spread 49.0 +1 bp
  • TED Spread 57.0 +1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -121.75 +18.25 bps
Economic Gauges:
  • 3-Month T-Bill Yield .00% unch.
  • Yield Curve 162.0 -5 bps
  • China Import Iron Ore Spot $132.10/Metric Tonne -1.27%
  • Citi US Economic Surprise Index 75.50 +3.6 points
  • 10-Year TIPS Spread 1.91 -2 bps
Overseas Futures:
  • Nikkei Futures: Indicating -17 open in Japan
  • DAX Futures: Indicating -25 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 bearish, as the S&P 500 gives up morning gains at its 50-day moving average and trades near session lows on rising Eurozone debt angst, rising global growth fears, higher energy prices, technical selling and tech sector pessimism. On the positive side, Oil Tanker, Oil Service, Road & Rail and Airline shares are especially strong, rising more than +1.0%. Small-caps are outperforming again. Copper is rising +2.7% and Lumber is up +1.3%. The Italy sovereign cds is falling -4.02% to 538.33 bps and the Spain sovereign cds is down -3.55% to 420.0 bps. On the negative side, Drug, Wireless and Computer Service shares are under mild pressure, falling more than -.5%. (XLK) has traded poorly again throughout the day. Gold is rising +1.8%, oil is gaining +.53% and the UBS-Bloomberg Ag Spot Index is up +.9%. The 10-year yield is falling -6 bps to 1.85% despite recent better economic data and equity strength. The Germany sovereign cds is jumping +4.0% to 106.67 bps and the France sovereign cds is climbing +1.4% to 227.83 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 +13.04% to -121.75 bps, which is back to mid-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 -31.2% since February 16th and -27.0% since Sept. 7th. The China Corporate Blended Spread Index remains very close to another technical breakout. The Citi Asia-Pacific Economic Surprise Index is at -25.1, which is right at the worst since April 2009. Asian shares bounced back overnight with the exception of India’s Sensex, which reversed a +1% opening gain and finished at session lows -2.2%. This index is now at the lowest since Nov. 2009 and is down -24.5% ytd. Brazil's Bovespa fell another -.42% today and is down -19.1% ytd. Major European equity indices fell today despite Asia/US strength. Overall, 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. Tech share performance is also troubling. Market/Tech sector leader (IBM) is breaking below its 50-day moving average today on volume. Trading still has an overall complacent feel as volume remains poor, leadership is lacking and each push lower is met by sloppy dip-buying. This is likely due to year-end window-dressing and seasonality. Today’s equity rally does not have the characteristics I normally see at the beginning of sustainable advances. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, tech sector pessimism, technical selling, rising energy prices and more shorting.

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