Friday, February 03, 2012

Stocks Rising Into Final Hour on Better US Economic Data, More Tech/Financial Sector Optimism, Short-Covering, Technical Buying


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.21 -4.28%
  • ISE Sentiment Index 152.0 +53.54%
  • Total Put/Call .74 -14.94%
  • NYSE Arms .70 -28.38%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.94 -4.96%
  • European Financial Sector CDS Index 161.35 -4.87%
  • Western Europe Sovereign Debt CDS Index 332.88 +.81%
  • Emerging Market CDS Index 256.42 -1.75%
  • 2-Year Swap Spread 27.0 +1 bp
  • TED Spread 46.0 +1 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -71.75 -2.75 bps
Economic Gauges:
  • 3-Month T-Bill Yield .07% -1 bp
  • Yield Curve 170.0 +10 bps
  • China Import Iron Ore Spot $143.30/Metric Tonne +.14%
  • Citi US Economic Surprise Index 83.70 +34.3 points
  • 10-Year TIPS Spread 2.16 +2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +104 open in Japan
  • DAX Futures: Indicating +11 open in Germany
Portfolio:
  • Higher: On gains in my Biotech, Retail, Medical and Tech sector longs
  • Disclosed Trades: Covered all of my (IWM), (QQQ) hedges and some of my (EEM) short, then added some back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish, as the S&P 500 breaks above last week's high on more financial/tech sector optimism, strong US economic data, short-covering, technical buying and gains in overseas equities. On the positive side, Alt Energy, Steel, Disk Drive, Networking, Bank, I-Banking, Hospital, Homebuilding and Airline shares are especially strong, rising more than +2.5%. Cyclical and small-cap shares are relatively strong. Financial and Tech shares are also outperforming again. Copper is jumping +3.32%, Gold is falling -1.9% and Lumber is jumping +3.76%. Oil continues to trade poorly, despite today's +.9% gain, given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and Mid-east tensions. Major Asian indices were mixed overnight with a +.77% gain in Shanghai offsetting a -.6% loss in South Korean shares. Major European indices rose around +1.25% with the Bloomberg European Bank/Financial Services Index posting a +2.45% gain despite ongoing Greece talks and stress in Portugal. The Japan sovereign cds is down -3.85% to 128.25 bps, the UK sovereign cds is down -3.95% to 74.17 bps and the Saudi sovereign cds is down -3.36% to 131.0 bps. Moreover, the European Investment Grade CDS Index is falling -4.2% to 117.28 bps. On the negative side, HMO, Gaming, Drug and Utility shares are flat-to-lower on the day. The Portugal sovereign cds is up +19.3% in 15 days. Lumber has declined -3.9% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is jumping +11 bps today to 1.93%, but remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last 3 weeks after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +471.0% ytd to the highest level since March of last year and approaching their April 2010 record. The strength of today’s economic reports has not yet been confirmed in other data, however it was impressive nonetheless. Last night, FINalternatives reported that the Credit Suisse Liquid Alternative Beta Index rose just +1.34% in January. This conflicts with a number of investor sentiment gauges that have been registering too much complacency. I had expected a pullback around current levels in the major indices, however with today’s break above last week’s high the S&P 500 looks poised to test 1,350 over the coming days after a brief pause to digest recent gains. For an intermediate-term 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 from current levels on more tech/financial sector optimism, short-covering, strong US economic data and technical buying.

1 comment:

theyenguy said...

Thanks for the report, Might you provide comment in a future reports as to some reasons why Shanghai Copper Inventories are up +471.0% ytd to the highest level since March of last year?