Tuesday, January 17, 2012

Stocks Rising into Final Hour on Less Tech Sector Pessimism, Short-Covering, Better US Economic Data, China Easing Hopes

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 21.19 +1.34%
  • ISE Sentiment Index 147.0 +65.17%
  • Total Put/Call .78 +8.33%
  • NYSE Arms 1.03 -32.97%
Credit Investor Angst:
  • North American Investment Grade CDS Index 113.31 -2.43%
  • European Financial Sector CDS Index 228.08 -6.95%
  • Western Europe Sovereign Debt CDS Index 373.67 -.45%
  • Emerging Market CDS Index 308.80 -.36%
  • 2-Year Swap Spread 34.0 -2 bps
  • TED Spread 54.0 -1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -83.0 +3 bps
Economic Gauges:
  • 3-Month T-Bill Yield .02% unch.
  • Yield Curve 163.0 -1 bp
  • China Import Iron Ore Spot $140.20/Metric Tonne -.21%
  • Citi US Economic Surprise Index 68.90 -3.5 points
  • 10-Year TIPS Spread 2.03 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +19 open in Japan
  • DAX Futures: Indicating -17 open in Germany
  • Slightly Higher: On gains in my Tech, Retail, Biotech and Medical 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 builds on recent gains, but trades at session lows near its late-Oct. high, despite financial sector pessimism, some earnings disappointments, rising global growth fears and rising energy prices. On the positive side, Oil Tanker, Semi, HMO, Energy and Alt Energy shares are especially strong, rising more than +1.25%. Tech shares have outperformed throughout the day. Copper is jumping +2.4%. Major European indices rose around +1.0% today. As well, the Bloomberg European Bank/Financial Services Index was +.96% higher on the day. Major Asian indices surged about +1.75% overnight. While China’s ChiNext Index(China’s Nasdaq) rose +4.5% last night, it has still plunged -28.04% since Nov. 15th of last year and is down -9.2% ytd. The Germany sovereign cds is falling -2.2% to 101.67 bps, the France sovereign cds is down -3.88% to 209.33 bps, the UK sovereign cds is down -2.87% to 90.33 bps and the Israel sovereign cds is down -2.82% to 205.67 bps. The Italian/German 10Y Yield Spread is falling -2.92% to 471.06 bps, which is an improvement, but still near the highest since Dec. 1995. On the negative side, Coal, Disk Drive, Bank and I-Bank shares are under meaningful pressure, falling more than -1.25%. As well, the Transports are lower on the day. Oil is gaining +1.5%, Gold is rising +.74% and Lumber is falling -1.55%. Lumber has declined -11.4% since Dec. 29th and is at the lower end of its recent range, near a multi-year low, despite better US economic data, improving sentiment towards homebuilders, stock rally and decline in eurozone debt angst. The 10Y T-Note Yield is falling -2 bps to 1.85%, despite today's stock rally and the recent improvement in economic data. The Portugal sovereign cds is rising another +1.2% to 1,198.0 bps(up +9.9% in 5 days and very near new record high). The Western Europe Sovereign CDS Index is still very 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 3M EUR/USD Cross-Currency Basis Swap is rising +3.42% to -82.58 bps, which is back to mid-Sept. levels. 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, while improving, European credit gauges are still at stressed levels despite the fact that the European debt crisis “can-kicking” solution is supposedly at hand. China Iron Ore Spot has plunged -22.5% since Sept. 7th of last year. Shanghai Copper Inventories are up +124.8% in 5 days to the highest level since April of last year. Action in the 10Y T-Note is especially concerning. The yield never broke out during the big equity rally off the lows/improving economic data and is now close to a technical breakdown. I think overall equity investor complacency regarding the health of the global economy is still fairly high. The market still has a "tired" feel, despite recent gains. For a sustainable 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. However, a convincingly break above the late-Oct. S&P 500 high would likely lead to further short-term gains. I expect US stocks to trade mixed-to-lower into the close on Eurozone debt angst, rising global growth fears, more shorting, earnings jitters, financial sector pessimism, technical resistance and profit-taking.

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