Friday, February 17, 2012

Stocks Rising Slightly into Final Hour on Less Eurozone Debt Angst, Financial Sector Optimism, US Economic Data, Short-Covering


Broad Market Tone:

  • Advance/Decline Line: Slightly Lower
  • Sector Performance: Mixed
  • Volume: Slightly Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 17.92 -6.76%
  • ISE Sentiment Index 146.0 +43.14%
  • Total Put/Call .76 -10.59%
  • NYSE Arms 1.0 +98.03%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.72 -1.42%
  • European Financial Sector CDS Index 185.03 -3.35%
  • Western Europe Sovereign Debt CDS Index 342.34 -1.52%
  • Emerging Market CDS Index 256.50 -1.01%
  • 2-Year Swap Spread 30.50 +1.25 bps
  • TED Spread 41.75 +2.25 bps
  • 3-Month EUR/USD Cross-Currency Basis Swap -70.25 +1.75 bps
Economic Gauges:
  • 3-Month T-Bill Yield .08% -1 bp
  • Yield Curve 172.0 +2 bps
  • China Import Iron Ore Spot $134.40/Metric Tonne -1.83%
  • Citi US Economic Surprise Index 64.90 -.6 point
  • 10-Year TIPS Spread 2.26 +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +88 open in Japan
  • DAX Futures: Indicating +12 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Biotech 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 mildly bullish, as the S&P 500 trades near session highs on less Eurozone debt angst, better US economic data, short-covering, more financial sector optimism and investor performance angst. On the positive side, Oil Service, Alt Energy, Telecom, Retail and Education shares are especially strong, rising more than +1.0%. Financial shares have traded well throughout the day. Gold is falling -.32% and Lumber is rising +1.4%. The 10Y Yield is rising +2 bps to 2.0%. The France sovereign cds is falling -3.6% to 187.0 bps, the Spain sovereign cds is falling -3.15% to 388.33 bps, the Japan sovereign cds is falling -5.22% to 124.77 bps and the Brazil sovereign cds is down -3.7% to 136.50 bps. On the negative side, Coal, Steel, Semi, Biotech and Hospital shares are under pressure, falling more than -1.0%. Tech shares are underperforming today and the Transports continue to trade relatively poorly. The UBS-Bloomberg Ag Spot Index rising +.35%, Oil is gaining +1.0% and Copper is falling -1.92%. Copper looks like it is rolling over technically at its 200-day. Lumber is -4.5% 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 weekly MBA Purchase Applications Index has been around the same level since May 2010. 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 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 month 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. Overall, credit gauges have deteriorated over the last week and remain at stressed levels. China Iron Ore Spot has plunged -25.8% since Sept. 7th of last year. Shanghai Copper Inventories are up +716.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Investors continue to price in a Eurozone debt crisis "can kicking" and stabilizing economic growth in the region. The odds of a disappointment here are increasing. As well, oil is very close to a technical breakout, with copper rolling over, which would also be an equity headwind. 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 less Eurozone debt angst, better US economic data, short-covering, more financial sector optimism, technical buying and investor performance angst.

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