Monday, January 09, 2012

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

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 21.07 +2.13%
  • ISE Sentiment Index 156.0 +67.64%
  • Total Put/Call .90 -6.25%
  • NYSE Arms .85 -41.76%
Credit Investor Angst:
  • North American Investment Grade CDS Index 119.94 +.36%
  • European Financial Sector CDS Index 276.50 +1.49%
  • Western Europe Sovereign Debt CDS Index 389.50 +.97%
  • Emerging Market CDS Index 311.39 -.99%
  • 2-Year Swap Spread 40.0 -3 bps
  • TED Spread 57.0 unch
  • 3-Month EUR/USD Cross-Currency Basis Swap -99.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .01% unch.
  • Yield Curve 171.0 +1 bp
  • China Import Iron Ore Spot $140.0/Metric Tonne unch.
  • Citi US Economic Surprise Index 89.70 -2.2 points
  • 10-Year TIPS Spread 2.09 unch.
Overseas Futures:
  • Nikkei Futures: Indicating -31 open in Japan
  • DAX Futures: Indicating +19 open in Germany
  • Slightly Higher: On gains in my Tech and Biotech sector longs
  • Disclosed Trades: None
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades slightly higher despite Eurozone debt angst, global growth fears, technical resistance and high energy prices. On the positive side, Alt Energy, Oil Tanker, Semi, Networking, Biotech, HMO, Road & Rail and Airline shares are especially strong, rising more than +1.0%. Cyclical and small-cap shares are relatively strong again. Gold is down -.60% and Oil is down -.54%. The France sovereign cds is falling -2.08% to 237.67 bps, the Spain sovereign cds is falling -2.12% to 441.33 bps, the Russia sovereign cds is down -2.94% to 275.67 bps and the Belgium sovereign cds is down -2.48% to 331.33 bps. On the negative side, Coal, Internet, Restaurant and Hospital shares are under pressure, falling more than -.75%. Lumber is falling -2.35%, Copper is down -.55% and the UBS-Bloomberg Ag Spot Index is up +1.72%. Major Asian indices cut opening losses and finished mixed, led by a +2.89% surge in the Shanghai Composite. It is noteworthy that most of the leading Chinese tech companies that are traded here in the US, such as BIDU, SINA, SOHU and NTES, are diverging from this index. Major European indices fell today, led down by a -1.7% drop in Italian shares, which are now down -4.5% ytd. As well, the Bloomberg Europe Bank/Financial Services Index dropped another -2.11% today and is now down -5.7% ytd, while the (XLF) has risen +3.4% ytd. The extent of this divergence is likely unsustainable over the intermediate-term. Moreover, the 10Y T-Note continues to trade well, which is another concern. The China sovereign cds is gaining +2.0% to 149.33 bps, the Japan sovereign cds is gaining +1.91% to 152.50 bps, the Saudi sovereign cds is jumping +3.40% to 136.34 bps and the Brazil sovereign cds is gaining +1.14% to 162.0 bps. The Italian/German 10Y Spread is rising +.73% to 531.36 bps(very near highest since Dec. 1995). The Western Europe Sovereign CDS Index made a new all-time high today. The TED spread continues to trend higher and is very 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 +1.81% to -99.31 bps, which is back to early-Nov. levels. The Libor-OIS spread is very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. 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. China Iron Ore Spot has plunged -22.6% since Sept. 7th of last year. Leadership is lacking today and volume remains poor. The market is beginning to take on a "tired" feel. The declines in Eurozone financials are becoming worrisome again, as well. Overall, investor complacency remains fairly high given the backdrop. For a sustainable equity advance from current levels, I would still expect to see meaningful 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 Eurozone debt angst, global growth fears, high energy prices, technical resistance, profit-taking and more shorting.

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