Friday, April 13, 2012

Stocks Falling into Final Hour on Less Homebuilder/Financial Sector Optimism, Rising Eurozone Debt Angst, Rising Global Growth Fears


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 19.06 +10.81%
  • ISE Sentiment Index 96.0 -36.0%
  • Total Put/Call .93 +10.71%
  • NYSE Arms 1.37 +238.17%
Credit Investor Angst:
  • North American Investment Grade CDS Index 100.88 +4.27%
  • European Financial Sector CDS Index 247.10 +5.02%
  • Western Europe Sovereign Debt CDS Index 279.13 +2.35%
  • Emerging Market CDS Index 265.32 +1.51%
  • 2-Year Swap Spread 30.0 +2.0 basis points
  • TED Spread 38.50 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -50.75 +2.0 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .08% unch.
  • Yield Curve 172.0 -4 basis points
  • China Import Iron Ore Spot $149.40/Metric Tonne +.40%
  • Citi US Economic Surprise Index 14.70 -.7 point
  • 10-Year TIPS Spread 2.28 -2 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -52 open in Japan
  • DAX Futures: Indicating +2 open in Germany
Portfolio:
  • Lower: On losses in my Retail, Technology, Medical and Biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 tests its 50-day moving average on rising Eurozone debt angst, less financial sector optimism, rising global growth fears, less dovish fed commentary and high energy prices. On the positive side, Utility, Restaurant and Software shares are higher on the day. Oil is falling -.7%, Gold is down -1.2% and the UBS-Bloomberg Ag Spot Index is down -1.3%. Major Asian indices rose around +1.25% overnight, led by a +1.8% gain in Hong Kong, despite weaker than expected economic data out of China. I continue to believe that China is not as close as many perceive to another major easing campaign. Indian shares, which had been a top global-performer during the Jan./Feb. rally, fell -1.4% and are now down -7.8% from their Feb. 22 high. The Sensex is very close to a technical breakdown, as well. On the negative side, Coal, Oil Service, Bank, I-Banking, Construction, Education, Alt Energy, Semi, Medical and Homebuilding shares are especially weak, falling more than -1.75%. Small-caps are relatively weak. Financial/Homebuilding shares have underperformed throughout the day. Copper is down -2.5%. The 10-year yield is falling -6 bps to 1.99%. Major European indices are falling around -2.5%, led down by a -3.4% decline in Spain. Spanish equities have plunged -30.2% from their Feb. 9 highs and are now down -15.4% ytd. The IBEX is close to its March 9, 2009 low. The Bloomberg European Financial/Bank Index is down -3.1% today and is down -15.0% in less than a month. The Germany sovereign cds is gaining +4.2% to 73.17 bps, the France sovereign cds is up +3.7% to 186.99 bps and the Spain sovereign cds is up +4.4% to 502.17 bps(new all-time high). Moreover, the European Investment Grade CDS Index is jumping +6.85% to 143.85 bps and the Italian/German 10Y Yld Spread is rising +4.7% to 378.79 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak despite investor perceptions that the US economy is accelerating. Moreover, the Citi US Economic Surprise Index has fallen back to mid-Oct. levels. Lumber is -7.0% since its Dec. 29th high despite the better US economic data, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -40.0% ytd. China Iron Ore Spot has plunged -18.0% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +712.0% ytd. China's March copper imports fell -4.6% on the month. Overall, credit gauges continue to weaken too much as Europe's debt crisis appears to be in the early stages of reigniting. Market-leaders are continuing their recent trend of underperformance, Dr. Copper trades poorly and bonds trade too well, which are all red flags. I have been cautioning about the dramatic underperformance in Spanish equities for some time. As well, the massive tax hikes/spending cuts that are coming down the pike there will only worsen their economy further, which will likely prove the domino that reignites the region’s debt crisis once again over the coming months. I continue to believe the LTRO, while a short-term can-kicking solution, will be viewed in a very negative light over the intermediate-term. US investor complacency regarding the situation in Europe remains fairly high, in my opinion. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of 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 modestly lower into the close from current levels on rising Eurozone debt angst, less financial/homebuilding sector optimism, rising global growth fears, profit-taking, less dovish fed commentary and high energy prices.

No comments: