Monday, January 23, 2012

Stocks Slightly Higher into Final Hour on Less Eurozone Debt Angst, More Financial Sector Optimism, Short-Covering

Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 18.84 +3.01%
  • ISE Sentiment Index 97.0 +2.11%
  • Total Put/Call 1.10 +39.24%
  • NYSE Arms .95 -12.54%
Credit Investor Angst:
  • North American Investment Grade CDS Index 104.79 -3.44%
  • European Financial Sector CDS Index 192.06 -2.40%
  • Western Europe Sovereign Debt CDS Index 335.18 -3.53%
  • Emerging Market CDS Index 278.96 -1.44%
  • 2-Year Swap Spread 34.0 -1 bp
  • TED Spread 52.0 +1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -80.0 -4 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .04% unch.
  • Yield Curve 182.0 +4 bps
  • China Import Iron Ore Spot $139.80/Metric Tonne unch.
  • Citi US Economic Surprise Index 70.60 -1.0 point
  • 10-Year TIPS Spread 2.06 +4 bps
Overseas Futures:
  • Nikkei Futures: Indicating +35 open in Japan
  • DAX Futures: Indicating -3 open in Germany
  • Slightly Higher: On gains in my Retail and Medical sector longs
  • Disclosed Trades: Added to my (IWM), (QQQ) hedges, 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 hugs the flatline despite a bounce in the euro, falling eurozone debt angst, more financial sector optimism and overseas stock strength. On the positive side, Coal, Energy, Computer Service and Gaming shares are especially strong, rising more than +.75%. Financial shares are outperforming again. Copper is rising +1.43%. Oil's bounce is unimpressive given the uptick in saber-rattling from Iran, escalating violence in Nigeria and euro bounce. Major European indices rose around +.75% today, led by a +1.6% gain in Italian shares. The Bloomberg European Bank/Financial Services Index rose +2.44%. European equities continue to price in a pause in the debt crisis and a stabilization in economic growth. While the debt crisis can appears to have been kicked again, economic growth is likely to contract further in the region over the coming months as more austerity measures take hold.The Germany sovereign cds is falling -3.5% to 91.33 bps, the France sovereign cds is down -3.81% to 175.33 bps, the Spain sovereign cds is falling -3.66% to 362.50 bps, the Italy sovereign cds is falling -4.35% to 445.0 bps and the Brazil sovereign cds is down -3.38% to 147.83 bps. The Italian/German 10Y Yield Spread is falling -4.24% to 413.51 bps, which is an improvement, but still at stressed levels. On the negative side, Restaurant, Homebuilding, Internet, Paper, Alt Energy and Road & Rail shares are under pressure, falling more than -.75%. Gold is rising +.65%, Oil is gaining +1.6%, the UBS-Bloomberg Ag Spot Index is gaining +1.22% and Lumber is flat 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 the better US economic data, improving sentiment towards homebuilders, stock rally and decline in eurozone debt angst. The 10Y T-Note Yield is still subdued considering the recent stock rally and improvement in US economic data. 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, while improving, European credit gauges are still at stressed levels. 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. Gold continues to trade well as it breaks back above its 50-day moving average and is close to a test of its intermediate-term downtrend line. At the end of last year, I said gold was near a tradable low and it is up +7.4% ytd. I took some profits today in my (GLD) long. The S&P 500's technical condition 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. I expect US stocks to trade mixed-to-higher into the close on declining Eurozone debt angst, more financial sector optimism and short-covering.

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