Wednesday, January 18, 2012

Stocks Rising into Final Hour on Less Eurozone Debt Angst, Less Financial/Tech Sector Pessimism, Better US Economic Data, Short-Covering

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 21.25 -4.28%
  • ISE Sentiment Index 131.0 -5.6%%
  • Total Put/Call .88 +6.02%
  • NYSE Arms .74 -39.02%
Credit Investor Angst:
  • North American Investment Grade CDS Index 112.97 -.30%
  • European Financial Sector CDS Index 216.67 -6.01%
  • Western Europe Sovereign Debt CDS Index 362.92 -2.50%
  • Emerging Market CDS Index 298.60 -2.68%
  • 2-Year Swap Spread 36.0 +2 bps
  • TED Spread 54.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -77.0 +6 bps
Economic Gauges:
  • 3-Month T-Bill Yield .02% unch.
  • Yield Curve 166.0 +3 bps
  • China Import Iron Ore Spot $139.90/Metric Tonne -.21%
  • Citi US Economic Surprise Index 69.90 +1.0 point
  • 10-Year TIPS Spread 2.06 +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +70 open in Japan
  • DAX Futures: Indicating +25 open in Germany
  • Higher: On gains in my Tech, Retail, Biotech and Medical sector longs
  • Disclosed Trades: Covered all of my (IWM), (QQQ) hedges and some of my (EEM) short, then added some back
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish, as the S&P 500 trades at session highs, convincingly above its late-Oct. high, on less Eurozone debt angst, less financial/tech sector pessimism, short-covering and better US economic data. On the positive side, Coal, Alt Energy, Oil Tanker, Oil Service, Steel, Semi, Networking, I-Banking, Homebuilding, Retail and Airline shares are especially strong, rising more than +2.0%. Tech/Financial shares have outperformed throughout the day. Cyclicals are also relatively strong. Copper is rising +.83%, the UBS-Bloomberg Ag Spot Index is down -.56% and oil is flat. Oil still trades poorly given the uptick in saber-rattling, better economic data and euro bounce. Johnson Redbook weekly retail sales rose 3.1% versus 3.3% gain the prior week. Retail sales continue to hold up pretty well despite the recent rise in gas prices. The France sovereign cds is falling -1.6% to 205.33 bps, the Hungary sovereign cds is falling -3.2% to 666.67 bps and the UK sovereign cds is down -1.85% to 88.67 bps. Moreover, the European Investment Grade CDS Index is falling -2.6% to 150.19 bps. The Italian/German 10Y Yield Spread is falling -1.62% to 463.44 bps, which is an improvement, but still near the highest since Dec. 1995. On the negative side, Utility, HMO, Education and Road & Rail shares are lower-to-flat on the day. Gold is rising +.5% and Lumber is just rising +.4% after recent sharp losses. Lumber has declined -11.0% 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 rising +4 bps to 1.89%, which isn't much considering the recent stock rally and improvement in US economic data. The Portugal sovereign cds is rising another +6.73% to 1,266.67 bps(up +16.75% in 5 days and making a 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 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 -22.8% 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 mixed overnight. However, the Shanghai Composite failed to build on yesterday's gains, falling -1.4%. Moreover, China’s ChiNext Index(China’s Nasdaq) plunged another -5.7%(at lowest since inception in June 2010). This index is down -32.1% since Nov. 15 and down -14.3% ytd, despite the global equity rally and investor perceptions that China has entered a large easing cycle. Major European indices were mostly lower, led down by Spain’s -1.34% decline. Spanish equities remain Europe’s worst-performers ytd, dropping -1.7%. The Bloomberg European Bank/Financial Services Index was slightly lower on the day. The SOX Index is surging above its 200-day moving average today on volume as it breaks above its late-Oct. high. This is a very positive development. I would become more comfortable with the sustainability of the current equity rally if higher-quality leadership emerged. The S&P 500's convincing break above its late-Oct. highs and the 1,300 level should lead to further gains after a brief pause. 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. One of my longs, (AAPL), is making an all-time high today. I suspect the shares are in multiple-expansion mode. I still see the stock substantially outperforming the market over the intermediate-term. I expect US stocks to trade mixed-to-higher into the close on declining Eurozone debt angst, less financial/tech sector pessimism, short-covering, better US economic data and stable energy prices.

1 comment:

Anonymous said...

what would you need to see to move to 100% long?