Wednesday, April 04, 2012

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Less US Economic Optimism, Profit-Taking


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 16.71 +6.71%
  • ISE Sentiment Index 96.0 -15.79%
  • Total Put/Call .98 +4.26%
  • NYSE Arms 1.29 -1.52%
Credit Investor Angst:
  • North American Investment Grade CDS Index 92.42 +2.08%
  • European Financial Sector CDS Index 227.32 +4.75%
  • Western Europe Sovereign Debt CDS Index 270.78 +2.52%
  • Emerging Market CDS Index 250.99 +2.83%
  • 2-Year Swap Spread 27.75 +2.5 basis points
  • TED Spread 39.75 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -50.75 -.75 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 189.0 -2 basis points
  • China Import Iron Ore Spot $147.60/Metric Tonne unch.
  • Citi US Economic Surprise Index 6.80 -5.0 points
  • 10-Year TIPS Spread 2.31 -6 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -70 open in Japan
  • DAX Futures: Indicating a +29 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Tech, Medical and Biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, exited some trading longs
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades lower on rising Eurozone debt angst, rising global growth fears, less US economic optimism, profit-taking and more shorting. On the positive side, Homebuilding and Airline shares are holding up relatively well, falling less than -.5%. The Transports are just slightly lower on the day. Oil is falling -2.2%, Gold is down -1.6%, Lumber is rising +.58% and the UBS-Bloomberg Ag Spot Index is down -.55%. The MBA Purchase Applications Index rose +7.2% this week, but remains in the same range it has been trapped in since May 2010. On the negative side, Alt Energy, Oil Tanker, Oil Service, Steel, Internet, Software, Semi, Disk Drive, Networking, Computer Service, Bank, I-Banking, Hospital, Biotech and Education shares are under meaningful pressure, falling more than -2.0%. Financials and Techs have underperformed throughout the day. The MS Cyclical Index(CYC) is underperforming again and is breaking below its 50-day moving average. Copper is down -3.11%. Major Asian indices fell around -1.25% overnight, led lower by a -2.29% decline in Japan. Major European indices are falling around -2.5%, led down by a -2.8% decline in Germany. Spanish equities are falling another -2.1% today and are now down -9.71% ytd. As I have been cautioning for awhile, this remains a large red flag for the region. As well, the Bloomberg European Financial Services/Bank Index is dropping -2.3%. This index is down -11.0% in about 2 weeks and is breaking below its 200-day moving average. 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 -8.5% 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 -60.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -18.5% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +741.0% ytd. Overall, credit gauges are starting to deteriorate too much as Spain’s economic troubles are intensifying at a faster pace than the “kick-the-can” crowd had hoped. I said a couple of months ago that economic optimism would likely peak during 2Q. It is likely that the peak has already passed. This does not mean the major averages can’t move higher after a pullback, but any further rally will likely be led by less economically-sensitive shares. However, if Spain starts unraveling at an accelerating pace, the major averages have likely also seen their peaks for the year. 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-higher into the close from current levels on short-covering, lower energy prices and investor performance angst.

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