Tuesday, January 24, 2012

Stocks Slightly Lower into Final Hour on Profit-Taking, Some Earnings Jitters, Rising Eurozone Debt Angst and More Shorting

Broad Market Tone:

  • Advance/Decline Line: Slightly Higher
  • Sector Performance: Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.25 +3.11%
  • ISE Sentiment Index 65.0 -36.27%
  • Total Put/Call 1.09 +4.81%
  • NYSE Arms 1.11 +5.16%
Credit Investor Angst:
  • North American Investment Grade CDS Index 104.21 -.54%
  • European Financial Sector CDS Index 193.99 +1.22%
  • Western Europe Sovereign Debt CDS Index 336.02 +.16%
  • Emerging Market CDS Index 283.13 +1.64%
  • 2-Year Swap Spread 35.0 +1 bp
  • TED Spread 53.0 +1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -76.0 +4 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .03% -1 bp
  • Yield Curve 182.0 unch.
  • China Import Iron Ore Spot $139.80/Metric Tonne unch.
  • Citi US Economic Surprise Index 69.90 -.7 point
  • 10-Year TIPS Spread 2.07 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +25 open in Japan
  • DAX Futures: Indicating -1 open in Germany
  • Higher: On gains in my Retail, Technology, Biotech and Medical sector longs
  • Disclosed Trades: Covered all of my (IWM), (QQQ) hedges, then added some back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near session highs, just down slightly on the day, despite rising eurozone debt angst, profit-taking and some earnings disappointments. On the positive side, Computer, Disk Drive, Networking, Hospital, Homebuilding and Education shares are especially strong, rising more than +1.0%. Tech shares are outperforming substantially. Small-Caps are also relatively strong. Oil is falling -.83%, gold is down -.72% and copper is rising +.39%. Oil continues to trade poorly given the recent uptick in saber-rattling from Iran, escalating violence in Nigeria, better US economic data and euro bounce. Johnson Redbook weekly retail sales rose +2.9% this week, which is about the long-term average, but the slowest pace since the week of April 5th of last year. The France sovereign cds is down -2.69% to 170.83 bps and the Italy sovereign cds is down -2.75% to 432.50 bps. On the negative side, Coal, Telecom, Restaurant and Road & Rail shares are under pressure, falling more than -1.0%. The UBS-Bloomberg Ag Spot Index is gaining +.79% and Lumber continues to trade very poorly, falling another -2.4%. The Portugal sovereign cds is up +1.5% to 1,287.33 bps(new record high) and the Brazil sovereign cds is jumping +2.7% to 151.83 bps today. Lumber has declined -11.1% since Dec. 28th 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. Moreover, the Baltic Dry Index has plunged -61.3% from its Oct. 14th high and is now down -51.6% ytd. 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. Major European stock indices fell about -.5%, which isn't bad considering the Greece worries and recent gains. The Bloomberg European Bank/Financial Services Index fell -1.0%. 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 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 tech sector optimism, lower energy prices, a bounce in the euro off the lows and short-covering.

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