Thursday, April 19, 2012

Stocks Falling into Final Hour on Less US Economic Optimism, Rising Eurozone Debt Angst, Market Leader Weakness, Some Earnings Jitters


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Around Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 19.20 +3.0%
  • ISE Sentiment Index 73.0 -41.13%
  • Total Put/Call 1.0 +2.04%
  • NYSE Arms 1.38 +25.78%
Credit Investor Angst:
  • North American Investment Grade CDS Index 100.56 +1.14%
  • European Financial Sector CDS Index 250.03 +2.04%
  • Western Europe Sovereign Debt CDS Index 280.15 +.59%
  • Emerging Market CDS Index 270.05 -.09%
  • 2-Year Swap Spread 29.75 +.5 basis point
  • TED Spread 40.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -47.75 +1.25 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 169.0 -2 basis points
  • China Import Iron Ore Spot $148.50/Metric Tonne unch.
  • Citi US Economic Surprise Index 5.3 -3.7 points
  • 10-Year TIPS Spread 2.21 -6 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -43 open in Japan
  • DAX Futures: Indicating -13 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Technology and Retail sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 reverses to session lows, falling below its 50-day moving-average, on rising Eurozone debt angst, some key earnings disappointments, weakness in some market leaders, rising global growth fears and less US economic optimism. On the positive side, Coal, Oil Service, Biotech, HMO and Airline shares are rising on the day. Oil is falling -.25%. Major Asian indices were mixed overnight, as a +1.0% gain in Hong Kong was offset by a -.8% decline in Japan. On the negative side, Defense, Steel, Computer, Semi, Disk Drive, Homebuliding, Restaurant and Road & Rail shares are under pressure, falling more than -1.0%. The Transports have traded poorly throughout the day. The UBS-Bloomberg Ag Spot Index is rising +.78%. The 10-year yield is falling another -2 bps to 1.96%. Major European indices are falling around -1.75% today, led lower by a -2.4% decline in Spain. Spain is now down -19.4% ytd and very close to its March 2009 low. The Bloomberg European Bank/Financial Services Index is falling another -1.4% and is down -15.9% in less than one month. The Germany sovereign cds is surging +5.4% to 82.81 bps(+18.2% in 5 days), the Italy sovereign cds is gaining +3.5% to 456.75 bps, the Belgium sovereign cds is gaining +2.5% to 259.31 bps and the Russia sovereign cds is gaining +1.7% to 200.78 bps. Moreover, the Italian/German 10Y Yld Spread is jumping +4.2% to 392.22 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 -9.0% since its Dec. 29th high despite the better US economic data, improving sentiment towards homebuilders and the broad equity rally. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. 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 +723.0% ytd. China's March copper imports fell -4.6% on the month. Singapore Electronics exports decelerated to a gain of +2.8% in March from a +23.3% gain in February. AAII % Bulls rose to 31.2, while the % Bears fell to 33.8. The recent erratic technical action in shares of (AAPL), a market-leader and the largest company in the world, remains a concern. Long AAPL. Copper still trades poorly, bonds still trade too well and the euro can’t sustain a meaningful bounce. There remains a fairly high level of complacency regarding the rapidly deteriorating situation in Europe, in my opinion. The ongoing significant rises in German/French cds remain red flags. 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 mixed-to-lower into the close from current levels on rising Eurozone debt angst, less US economic optimism, weakness in some market leaders, rising global growth fears and some key earnings disappointments.

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