Wednesday, January 11, 2012

Stocks Slighly Higher into Final Hour on Less Financial/Tech Sector Pessimism, Short-Covering, Falling Energy Prices, Earnings Optimism

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 21.14 +2.17%
  • ISE Sentiment Index 105.0 -22.22%
  • Total Put/Call .80 unch.
  • NYSE Arms .72 -15.89%
Credit Investor Angst:
  • North American Investment Grade CDS Index 117.70 +.34%
  • European Financial Sector CDS Index 258.33 +.20%
  • Western Europe Sovereign Debt CDS Index 379.50 +.34%
  • Emerging Market CDS Index 311.33 +1.69%
  • 2-Year Swap Spread 38.0 -2 bps
  • TED Spread 56.0 -1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -87.0 +6 bps
Economic Gauges:
  • 3-Month T-Bill Yield .01% unch.
  • Yield Curve 168.0 -5 bps
  • China Import Iron Ore Spot $142.20/Metric Tonne -.07%
  • Citi US Economic Surprise Index 87.80 -1.0 point
  • 10-Year TIPS Spread 2.02 -4 bps
Overseas Futures:
  • Nikkei Futures: Indicating -9 open in Japan
  • DAX Futures: Indicating +13 open in Germany
  • Slightly Higher: On gains in my Tech, Medical and Biotech sector longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 maintains recent gains near its late-Oct. high, despite Eurozone debt angst, global growth fears and high energy prices. On the positive side, Coal, Alt Energy, Oil Tanker, Steel, Networking, Hospital and Homebuilding shares are especially strong, rising more than +1.25%. Cyclical and small-cap shares are outperforming again. Copper is rising +.91% and Oil is falling -1.2%. It is noteworthy that oil is weak today despite threats of a complete Nigerian output shutdown and the killing of an Iranian nuclear scientist. Major Asian indices finished mostly higher overnight after a weak start, however the Shanghai Composite was unable to build on its gains over the last 2 days as it fell -.42%. European shares were modestly lower, led down by the UK(-.45%) and Spain(-.54%). However, the Bloomberg European Bank/Financial Services Index was +.3% on the day.The Spain sovereign cds is down -2.41% to 413.67 bps, the Italy sovereign cds is falling -2.26% to 516.83 bps and the China sovereign cds is falling -2.78% to 146.43 bps. On the negative side, Energy and Oil Service shares are under pressure, falling more than -1.25%. Gold is gaining +.6% and Lumber is falling -2.2%. Moreover, the 10Y T-Note Yield is at session lows, falling -6 bps to 1.90%, which is another concern. The Portugal sovereign cds is rising +.77% to 1,085.0 bps, the Ireland sovereign cds is gaining +.87% to 693.33 bps, the Hungary sovereign cds is gaining +2.86% to 680.33 bps, the Brazil sovereign cds is gaining +2.66% to 160.32 bps and the Israel sovereign cds is gaining +3.75% to 210.54 bps. The Italian/German 10Y Spread is falling -1.23% to 517.07 bps(still very near highest since Dec. 1995). 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 +6.55% to -86.87 bps, which is back to mid-Oct. 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. Overall, while improving, European credit gauges are still at very stressed levels despite the fact that the European debt crisis “can-kicking” solution is supposedly at hand. China Iron Ore Spot has plunged -21.4% since Sept. 7th of last year. Last year's worst-performers are leading again today and volume remains poor. 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. One of my longs, (GOOG), is finding support around its 50-day moving average, after its recent pullback. I still think the stock will outperform over the intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on less financial sector pessimism, short-covering, lower energy prices and less tech sector pessimism.

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