Tuesday, May 08, 2012

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

Broad Market Tone:
  • Advance/Decline Line: Lower
  • Sector Performance: Every Sector Declining
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.45 +2.69%
  • ISE Sentiment Index 51.0 -37.8%
  • Total Put/Call 1.19 +32.22%
  • NYSE Arms 2.13 +107.78%
Credit Investor Angst:
  • North American Investment Grade CDS Index 101.04 +1.15%
  • European Financial Sector CDS Index 255.98 +4.84%
  • Western Europe Sovereign Debt CDS Index 279.38 +1.39%
  • Emerging Market CDS Index 253.88 +2.10%
  • 2-Year Swap Spread 31.0 +1.25 basis points
  • TED Spread 38.0 -1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -45.25 -3.75 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .09% +1 basis point
  • Yield Curve 158.0 -4 basis points
  • China Import Iron Ore Spot $142.70/Metric Tonne -.97%
  • Citi US Economic Surprise Index -22.0 +1.1 points
  • 10-Year TIPS Spread 2.18 -2 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -82 open in Japan
  • DAX Futures: Indicating +39 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Medical/Biotech sector longs and index hedges
  • Disclosed Trades: Covered some of my IWM/QQQ hedges, then added them back
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades well off session lows, but still lower for the day, despite rising Eurozone debt angst, less financial sector optimism, high energy prices, rising global growth fears, technical selling, more shorting and less US economic optimism. On the positive side, Biotech and Tobacco shares are rising on the day. Oil is falling -.6% and Gold is down -1.9%. On the negative side, Steel, Alt Energy, Coal, Oil Service, Disk Drive, Telecom, I-Banking, Homebuilding and Restaurant shares are under meaningful pressure, falling more than -1.50%. Cyclicals are underperforming again. Financial shares have lagged throughout the day. Lumber is down -.5% and Copper is down -2.2%. Major Asian Indices were mixed overnight as a +.7% gain in Japan was offset by a -2.2% decline in India. India's Sensex, which finished near session lows, is down -4.5% in 5 days and down -10.7% since Feb. 22. Major European indices fell around -2.0%, led lower by a -2.8% decline in France. French stocks are now down -1.1% ytd and down -12.0% since March 16th. Italian stocks fell another -2.4% and are down -7.7% ytd(-18.5% since March 19th). The Bloomberg European Bank/Financial Services Index fell -2.0%. The Germany sovereign cds is gaining +1.77% to 86.33 bps, the France sovereign cds is jumping +5.0% to 202.92 bps, the Spain sovereign cds is rising +2.88% to 498.51 bps, the Italy sovereign cds is rising +1.2% to 446.33 bps, the Ireland sovereign cds is gaining +1.9% to 587.83 bps, the Brazil sovereign cds is gaining +2.9% to 127.06 bps and the US sovereign cds is surging +3.7% to 40.66 bps. Moreover, the European Investment Grade CDS Index is jumping +4.4% to 150.58 bps and the Italian/German 10Y Yld Spread is gaining +3.0% to 391.20 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. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -5.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. 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 -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +564.0% ytd. The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades. Copper is breaking below its 200-day moving average. Weekly retail sales rose +2.6% this week versus a +3.2% gain the prior week and have decelerated from a +4.1% gain the week ended April 10th. The huge jump in consumer credit for April, given decelerating retail sales and lower gas prices, is another red flag. The 10Y T-Note continues to trade too well, despite a +47.0% gain in less than 3 weeks for the US sovereign cds, and the euro currency is close to a technical breakdown from its recent range. In general, US stocks remain extraordinarily resilient as aggressive dip-buyers once again materialized into an opening swoon. I continue to believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. 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, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and lower energy prices.

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