Wednesday, May 09, 2012

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


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 20.11 +5.88%
  • ISE Sentiment Index 106.0 +89.29%
  • Total Put/Call 1.0 -11.50%
  • NYSE Arms .98 -44.22%
Credit Investor Angst:
  • North American Investment Grade CDS Index 103.22 +2.27%
  • European Financial Sector CDS Index 258.72 +1.01%
  • Western Europe Sovereign Debt CDS Index 287.24 +4.47%
  • Emerging Market CDS Index 261.39 +3.22%
  • 2-Year Swap Spread 33.0 +2.0 basis points
  • TED Spread 38.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -48.25 -3.0 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .09% unch.
  • Yield Curve 157.0 -1 basis point
  • China Import Iron Ore Spot $141.30/Metric Tonne -.98%
  • Citi US Economic Surprise Index -21.60 +.4 point
  • 10-Year TIPS Spread 2.16 -2 basis points
Overseas Futures:
  • Nikkei Futures: Indicating a -60 open in Japan
  • DAX Futures: Indicating +1 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Tech 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 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, Coal, Computer and Homebuilding shares are especially strong, rising more than +.75%. Tech/Homebuilding shares have held up well throughout the day. Oil is falling -1.0%, the UBS-Bloomberg Ag Spot Index is down -1.0% and Gold is down -1.0%. On the negative side, Energy, Oil Service, Ag, Paper, Bank, Biotech, Drug, Hospital, HMO, Road & Rail and Airline shares are under pressure, falling more than -1.50%. Transportation and Financial shares have lagged throughout the day. Lumber is down -.54% and Copper is down -.4%. Major Asian indices fell around -1.25% overnight, led lower by a -1.7% decline in China. The Nikkei fell another -1.5% and is down -11.0% in about 6 weeks, closing slightly below its 200-day ma. Major European indices are falling around -.75%, led lower by a -2.8% decline in Spain. Spain is now just 109 points away from its March 9th, 2009 low and down -20.5% ytd. The Bloomberg European Bank/Financial Services Index is down -2.0% today and down -19.0% since March 19th. The Germany sovereign cds is gaining +4.3% to 89.17 bps, the France sovereign cds is jumping +3.5% to 209.50 bps, the Spain sovereign cds is rising +3.6% to 516.17 bps(testing all-time high), the Italy sovereign cds is rising +3.8% to 462.0 bps, the Portugal sovereign cds is jumping +4.6% to 1,106.29 bps, the China sovereign cds is gaining +3.0% to 118.64 bps, the Russia sovereign cds is rising +4.3% to 206.33 bps and the Brazil sovereign cds is gaining +3.7% to 131.79 bps. Moreover, the European Investment Grade CDS Index is jumping +3.9% to 156.41 bps and the Italian/German 10Y Yld Spread is gaining +4.3% to 407.91 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 -5.5% 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 -22.0% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +556.0% ytd. The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades. Overall, recent credit gauge deterioration is a big worry with a number of key sovereign cds breaking out technically. The 10Y T-Note continues to trade too well, copper trades poorly and the euro currency is breaking down technically. Oil is testing its 200-day ma again. While crude will likely bounce off this level short-term, I expect it to move still lower over the coming months. 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-lower into the close from current levels on rising Eurozone debt angst, less US economic optimism, rising global growth fears, more shorting, technical selling and less financial sector optimism.

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