Thursday, April 05, 2012

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Rising Energy Prices, Global Growth Fears, Profit-Taking


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 16.88 +2.68%
  • ISE Sentiment Index 104.0 +8.33%
  • Total Put/Call .96 -2.04%
  • NYSE Arms 1.58 +10.87%
Credit Investor Angst:
  • North American Investment Grade CDS Index 96.85 +4.39%
  • European Financial Sector CDS Index 234.51 +3.24%
  • Western Europe Sovereign Debt CDS Index 272.66 +.74%
  • Emerging Market CDS Index 253.93 +1.46%
  • 2-Year Swap Spread 29.0 +1.25 basis points
  • TED Spread 39.75 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -54.0 -3.25 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 183.0 -6 basis points
  • China Import Iron Ore Spot $147.60/Metric Tonne unch.
  • Citi US Economic Surprise Index 6.90 +.1 point
  • 10-Year TIPS Spread 2.28 -3 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -32 open in Japan
  • DAX Futures: Indicating a -19 open in Germany
Portfolio:
  • Higher: On gains in my Tech, Retail and Biotech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 hugs the flatline despite rising Eurozone debt angst, rising global growth fears, profit-taking and rising energy prices. On the positive side, Software, HMO, Restaurant and Road & Rail shares are especially strong, rising more than +.5%. The Transports are outperforming again. Lumber is rising +2.6%. The AAII % Bulls fell to 38.2 this week, while the % Bears rose to 27.8. On the negative side, Coal, Computer Hardware, Disk Drive, Networking, Construction, Oil Tanker, Alt Energy and Defense shares are under pressure, falling more than -.75%. The MS Cyclical Index(CYC) is underperforming again and is below its 50-day moving average. The UBS-Bloomberg Ag Spot Index is rising +.4%, Oil is up 1.2% and Gold is gaining +.76%. The 10-year yield is falling -5 bps to 2.17%. Major Asian indices were mostly lower overnight, led down by a -.95% decline in Hong Kong. Major European were flat on the day. Spanish equities are now down -10.6% 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 fell another -.6% today. This index is down -12.0% in about 2 weeks and is now below its 200-day moving average. The Germany sovereign rose +2.35% to 73.83 bps, the France sovereign cds is gaining +3.72% to 179.19 bps, the Italy sovereign cds is gaining +2.2% to 418.58 bps, the Russia sovereign cds gained +3.9% to 192.16 bps and the Belgium sovereign cds gained +4.0% to 244.44 bps. Moreover, the European Inv Grade CDS Index is gaining +2.2% to 132.22 bps and the Asia Pac Sovereign CDS Index jumped +4.9% to 132.70 bps. 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 -6.0% 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 -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 weaken too much as Spain’s economic troubles are intensifying at a faster pace than the “kick-the-can” crowd had hoped. The fact that German 2/5Y Yields hit new record lows today, despite perceptions that their economy is strong and labor costs are starting to rise too much, is another large red flag and also bodes well for the much-hated US T-Note. Global equities will likely take their cue from the US employment report tomorrow, however renewed stock weakness is likely next week unless Eurozone debt angst begins to subside soon. 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, more US economic optimism and investor performance angst.

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