Monday, January 30, 2012

Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Less Financial Sector Optimism, Global Growth Fears, Profit-Taking

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.40 +4.70%
  • ISE Sentiment Index 103.0 -25.90%
  • Total Put/Call .94 +6.82%
  • NYSE Arms 1.23 -28.41%
Credit Investor Angst:
  • North American Investment Grade CDS Index 103.40 +2.24%
  • European Financial Sector CDS Index 190.50 +7.50%
  • Western Europe Sovereign Debt CDS Index 345.0 +4.08%
  • Emerging Market CDS Index 267.88 +.88%
  • 2-Year Swap Spread 33.0 +1 bp
  • TED Spread 50.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -73.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .05% unch.
  • Yield Curve 162.0 -7 bps
  • China Import Iron Ore Spot $139.90/Metric Tonne +.07%
  • Philly Fed ADS Real-Time Business Conditions Index .0250 -4.21%
  • Citi US Economic Surprise Index 63.50 -1.9 points
  • 10-Year TIPS Spread 2.09 -1 bp
Overseas Futures:
  • Nikkei Futures: Indicating -41 open in Japan
  • DAX Futures: Indicating +27 open in Germany
  • Slightly Lower: On losses in my Biotech, Medical and Retail sector longs
  • Disclosed Trades: Added to my (IWM), (QQQ) hedges and then covered some of them
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades lower, but near session highs, on more global growth fears, profit-taking, high energy prices, less financial sector optimism and rising Eurozone debt angst. On the positive side, Oil Tanker, Computer Service and Airline shares are especially strong, rising more than +.5%. The UBS-Bloomberg Ag Spot Index is falling -1.65%, gold is declining -.54%, Lumber is gaining +1.89% and Oil is down -.70%. Oil continues to trade poorly given the recent uptick in saber-rattling from Iran, escalating violence in the Mid-east, better US economic data and euro bounce. On the negative side, Bank, REIT, Coal, Alt Energy, Oil Service, Steel, Semi, Networking, Hospital, Construction, Homebuilding and Education shares are under pressure, falling more than -1.0%. (XLF) has underperformed throughout the day. Copper is falling -1.52%. The Germany sovereign cds is rising +7.1% to 91.50 bps, the France sovereign cds is gaining +6.45% to 176.33 bps, the Spain sovereign cds is rising +7.66% to 381.67 bps, the Italy sovereign cds is jumping +7.4% to 427.67 bps, the Belgium sovereign cds is rising +3.89% to 249.83 bps, the UK sovereign cds is gaining +2.94% to 80.33 bps and the Japan sovereign cds is rising +3.0% to 136.33 bps. The Portugal sovereign cds is up +5.2% to 1,510.0 bps(+39.6% in 11 days to new record high). The Portugal 10Y Yld is soaring +217 bps to 17.39%. The Italian/German 10Y Yield Spread is rising +5.2% to 424.89 bps. Lumber has declined -11.5% since its Dec. 29th high and is still near the lower end of its recent range(near a multi-year low) despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is falling -5 bps to 1.84% and remains a large concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last 3 weeks after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still near its Jan. 9th all-time high. The TED spread is near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is near the highest since February 2009. The Libor-OIS spread is still very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. Overall, the improvement in credit gauges appears to be stalling at still stressed levels, which is liklely related to rising concerns surrounding Portugal. China Iron Ore Spot has plunged -22.8% since Sept. 7th of last year. Shanghai Copper Inventories are up over 300.0% ytd to the highest level since March of last year. Major Asian indices were down around -1.5% overnight, led lower by a -2.15% decline in India shares. The Shanghai Composite re-opened from the holidays and fell -1.5%, led lower by a -2.75% decline in the Shanghai Property Index. Major European indices fell around -1.25%, led down by France’s -1.6% decline. As well, the Bloomberg European Bank/Financial Services Index fell -3.15%. The market’s focus is rapidly moving from Greece to Portugal, which appears headed for another bailout. Many are suggesting that the issues in Europe are priced into stock prices at current levels, however recent history suggests otherwise. Furthermore, given that several key investor sentiment gauges are registering too much complacency and stocks are technically extended, a more cautious approach is warranted. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, less financial sector optimism, more shorting, profit-taking, high energy prices and global growth fears.

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