Thursday, August 30, 2012

Stocks Falling into Final Hour on Surging Eurozone Debt Angst, Rising Global Growth Fears, Tech/Commodity Sector Weakness, Technical Selling


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.62 +3.28%
  • ISE Sentiment Index 101.0 -15.83%
  • Total Put/Call 1.09 +15.83%
  • NYSE Arms 1.45 +25.42%
Credit Investor Angst:
  • North American Investment Grade CDS Index 102.30 bps +1.36%
  • European Financial Sector CDS Index 251.75 bps +3.07%
  • Western Europe Sovereign Debt CDS Index 233.13 +.39%
  • Emerging Market CDS Index 251.05 +1.03%
  • 2-Year Swap Spread 17.25 -.25 basis point
  • TED Spread 33.0 +.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -33.0 -2.5 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .09% -1 basis point
  • Yield Curve 137.0 -1 basis points
  • China Import Iron Ore Spot $88.70/Metric Tonne -1.77%
  • Citi US Economic Surprise Index -4.00 -.1 point
  • 10-Year TIPS Spread 2.27 -4 basis points
Overseas Futures:
  • Nikkei Futures: Indicating -40 open in Japan
  • DAX Futures: Indicating +9 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Tech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  • Market Exposure: Moved to 25% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades lower on surging eurozone debt angst, high food/energy prices, US "fiscal cliff" worries and rising global growth fears. On the positive side, Education, Homebuilding and Airline shares are flat on the day. Lumber is rising +.5% and Oil is falling -.2%. On the negative side, Coal, Alt Energy, Ag, Road& Rail, Oil Tanker, Oil Service, Computer, Semi, Disk Drive and Networking shares are especially weak, falling more than -1.25%. Tech shares have traded poorly throughout the day. The 10Y Yld is falling -2 bps to 1.63%. Major Asian indices were lower overnight, led down by a -1.2% decline in Hong Kong(-2.9% in 5 days). The Shanghai Comp was down -.03%, but is down -6.7% ytd, -18.0% over the last 12 months and just off the lowest level since March 2009, which remains a large red flag for the global economy. I continue to believe that China’s large overcapacity, partly as a result of the last stimulus program, will preclude another major stimulus as it would exacerbate an already growing bad loan problem. Major European indices were lower today, led down by a -1.6% decline in Germany. The Bloomberg European Bank/Financial Services Index fell -1.3%. The Germany sovereign cds is surging +7.5% to 63.15 bps, the France sovereign cds is jumping +3.4% to 140.72 bps, the Spain sovereign cds is gaining +3.7% to 510.4 bps(+5.2% in 5 days), the Italy sovereign cds is rising +2.4% to 466.82 bps(+7.5% in 5 days) and the UK sovereign cds is gaining +2.4% to 54.65 bps. Moreover, the European Investment Grade CDS Index is rising +4.0% to 151.88 bps and the Spain 10Y Yld is rising +2.0% to 6.59%. The UBS/Bloomberg Ag Spot Index is up +27.0% since 6/1. The benchmark China Iron/Ore Spot Index is down -51.0% since 9/7/11. The China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that the Eurozone has successfully kicked-the-can and global central bank stimuli will boost economic growth in the near future.

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