Tuesday, June 28, 2011

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Quarter-End Window Dressing, Short-Covering, Earnings Optimism


Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 19.42 -5.54%
  • ISE Sentiment Index 109.0 unch.
  • Total Put/Call .94 +9.30%
  • NYSE Arms .71 +13.40%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.49 -2.24%
  • European Financial Sector CDS Index 127.49 -3.11%
  • Western Europe Sovereign Debt CDS Index 239.50 -.96%
  • Emerging Market CDS Index 224.55 -3.54%
  • 2-Year Swap Spread 23.0 -4 bps
  • TED Spread 23.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .02% +1 bp
  • Yield Curve 255.0 +2 bps
  • China Import Iron Ore Spot $168.40/Metric Tonne -.06%
  • Citi US Economic Surprise Index -99.40 -2.5 points
  • 10-Year TIPS Spread 2.29% +6 bps
Overseas Futures:
  • Nikkei Futures: Indicating +112 open in Japan
  • DAX Futures: Indicating +59 open in Germany
Portfolio:
  • Higher: On gains in my Retail, Biotech, Medical and Tech longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges, then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 moves further off its 200-day moving average despite eurozone debt angst, global growth concerns, emerging market inflation fears, rising food/energy prices, US debt ceiling worries and more weak US economic data. On the positive side, Education, , Gaming, Restaurants, Construction, HMO, Biotech, Networking, Steel, Oil Service, Energy and Coal shares are especially strong, rising more than +1.75%. Small-caps and cyclicals are outperforming. As well, "growth" shares are strongly outperforming "value" again today. The 10-year yield is rising +10 bps to 3.03%. Copper is rising +1.1%. The Greece sovereign cds is falling -3.4% to 2,036.50 bps, the Spain sovereign cds is falling -2.93% to 288.0 bps, the Italy sovereign cds is down -5.2% to 194.0 bps, the Ireland sovereign cds is -3.37% to 796.17 bps, the Russia sovereign cds is down -4.36% to 153.17 bps, the Hungary sovereign cds is down -5.8% to 266.85 bps, the Saudi sovereign cds is declining -4.17% to 97.14 bps and the UK sovereign cds is down -3.2% to 66.5 bps. Weekly retail sales rose +3.5% this week versus a +3.9% gain the prior week. On the negative side, Bank, Oil Tanker, Airline, Tobacco and I-Banking shares are flat-to-modestly lower on the day. (XLF)/(IYR) have underperformed throughout the day. Lumber is falling -2.6%, oil is rising +2.2% and the UBS-Bloomberg Ag Spot Index is rising +2.2%. The US price for a gallon of gas is -.02/gallon today to $3.55/gallon. It is up .41/gallon in less than 5 months. The China sovereign cds is near a 52-week high, rising +2.2% to 88.6 bps and the Emerging Markets Sovereign CDS Index is gaining +3.3% to 183.08 bps. Some key Asian indices were unable to rally overnight. Eurozone cds are lower, but not as much as I would have expected given the strength of equity markets in anticipation of a positive Greece outcome. Breadth is better today, but volume remains lackluster. As well, the lack of participation by the financials is a worry. Stocks should rally on tomorrow morning's expected outcome, however profit-taking may surface later in the day as the longer-term eurozone debt situation remains a large problem. I expect US stocks to trade mixed-to-higher from current levels into the close on short-covering, quarter-end window dressing, less eurozone debt angst, bargain-hunting and technical buying.

Today's Headlines


Bloomberg:

  • Stocks, Euro Rise Amid Greece Optimism. Stocks gained, erasing the MSCI All- Country World Index’s 2011 loss, while the euro rose and Treasuries fell amid speculation Europe will take action to prevent a Greek default. “With the German banks on board, you find the solution which alleviates some of the European debt problems,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “If you can get beyond that sovereign crisis, then confidence comes back and we can see a rally in risk assets.”
  • Greek Strike Overshadows Budget Vote. Greek police fired tear gas to disperse protesters in the center of Athens as labor unions shut down government services before a vote on austerity measures that may determine if the nation can avoid a default. Lawmakers have now begun a second day of debate on Prime Minister George Papandreou’s five-year plan of budget cuts and asset sales after a crowd estimated by police to number 20,000 thronged outside Parliament to mark a 48-hour general strike. Hooded youths faced volleys of tear gas as they attacked riot officers, smashed windows at a McDonald’s Corp (MCD) restaurant and set two vans on fire. “We are determined to stop this plan from passing and if it does pass, we will continue our efforts,” said Dimitra Oikonomou, 50, a schoolteacher who joined today’s rallies. “The government might not listen to us now, but in the end they will hear it all at once.”
  • German Banks Said to Meet Government Tomorrow Over Greek Aid Contributions. German banks and insurers will use a French proposal as a blueprint for discussion when they meet with finance ministry officials in Berlin tomorrow to seek an agreement on their role in a Greek rescue, two people with knowledge of the matter said. The working-level talks will focus on possible adjustments to the French banks’ plan to roll over a portion of maturing bonds to help prevent a Greek default, said the people, who declined to be identified because the talks are private. Germany’s banking associations agreed with government officials today to pursue such a model, one of the people said. The talks are part of Europe-wide efforts to get creditors to share the burden of a second Greek bailout and prevent the euro-region’s first default, a year after a 110 billion-euro ($157 billion) package failed to stop the debt crisis from spreading.
  • Sovereign Bond Risk Retreats From Record in Europe, Swaps Show. The cost of insuring against default on European sovereign debt pulled back from record levels, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments dropped 11 basis points to 232 at 4 p.m. in London. A decline signals improvement in perceptions of credit quality. Swaps on Portugal tumbled 51 basis points to 795, Ireland dropped 38 to 780 and Greece fell 36.5 to 2,072.5, according to CMA. Contracts on Belgium, Italy and Spain also fell. Swaps on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings decreased 12 basis points to 422, the first decline in five days, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 3 basis points to 112.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 6.5 basis points to 169 and the subordinated index dropped 13 to 293.5.
  • Greek Rollover Would Probably Rate as Default, Fitch Says in FT. A “voluntary rollover” of Greek bonds, as they mature, into bonds with similar terms would “very likely” be viewed by Fitch Ratings Ltd. as a sovereign default, according to David Riley, Fitch’s group managing director with responsibility for sovereign ratings and international public finance. In a letter to the Financial Times, published today, Riley disputed a statement in a June 24 FT article that Fitch has “signaled” that it wouldn’t downgrade Greek bonds to default in the event of such a rollover, which wouldn’t amount to “a failure to pay coupons or principal.” In fact, the Greek sovereign rating would probably be placed in “restricted default,” Riley wrote. Fitch is “guided by the spirit as well as the letter” of its yardsticks and “if it looks like a default, we will rate it as a default,” Riley said.
  • Crude Oil in New York Rises From Near Four-Month Low. Oil rose from a four-month low amid speculation that Greek lawmakers will approve austerity measures to prevent a default on the country’s debt and on forecasts U.S. fuel demand will rise before the Fourth of July holiday. Crude increased as much as 1.7 percent as the euro strengthened ahead of the Greek vote tomorrow that would prevent the euro-zone’s first sovereign debt default. The U.S. Independence Day weekend typically marks the peak consumption period for U.S. motorists. Crude for August delivery rose 76 cents, or 0.8 percent, to $91.37 a barrel at 11:36 a.m. on the New York Mercantile Exchange. Futures have gained 17 percent in the past year and have fallen 14 percent so far in the second quarter.
  • U.S. Consumer Confidence Hits Seven-Month Low. Consumer confidence dropped to a seven-month low in June as Americans grew concerned about the outlook for jobs and wages. The Conference Board’s sentiment index decreased to 58.5 from a revised 61.7 in May that was higher than previously estimated, figures from the New York-based private research group showed today. Home prices fell in the year ended in April by the most in 17 months, another report showed. Unemployment hovering around 9 percent, deterioration in the housing market and a drop in share prices may restrain Americans’ sentiment, raising the risk that the biggest part of the economy will stagnate.
  • Obama's $7 Billion Renewable Energy Grants Targeted for Audits. Government investigators are auditing some of President Barack Obama’s more than $7 billion in renewable energy grants to determine whether the money was awarded properly and the recipients were eligible. Examiners are reviewing 14 of the 2,600 projects that received tax dollars under the initiative to promote wind and solar power created in the 2009 stimulus bill, according to Richard Delmar, counsel to the Treasury Department’s inspector general. Under the program run by the Treasury, developers receive as much as 30 percent of the cost of a project.
  • Obama Serves Lobster Not Justice to 'Fat Cats': William D. Cohan. As we head into the 2012 presidential election cycle, the new, official Obama administration policy on Wall Street is crystalline: Hands off the bad guys.
  • Siemens Sees Growth Easing in Second Half as Boost From Economy Eases Off. Siemens AG (SIE) predicted growth will be tougher to achieve in the second half as the stimulus from an economic rebound is petering out, sending the shares of Europe’s largest engineering company on their biggest drop in 15 weeks. “The tailwind from the economic recovery is likely over,” Chief Financial Officer Joe Kaeser told analysts in Shanghai today, in comments broadcast on the Internet. “Now, increased efforts are required for continued growth.”
  • Trichet's 'Strong Vigilance' Comment Signals ECB to Raise Rates Next Week. European Central Bank President Jean-Claude Trichet said policy makers are in “strong vigilance mode,” signaling they intend to raise interest rates next week even as Greece struggles to avert a default. “We’re taking the decision progressively to anchor inflation expectations,” Trichet said at a press conference in Amsterdam today following a seminar with central bankers from the Asia-Pacific region. “As far as we’re concerned, we’re in strong vigilance mode,” he said, repeating a phrase the ECB uses to indicate a rate increase is imminent.
Wall Street Journal:
  • Firms Loosen Grip on Cash. Companies are starting to spend some of their record piles of cash, making acquisitions and increasing capital expenditures that could provide a much-needed boost to the economy.
MarketWatch:
CNBC.com:
Business Insider:
Muddy Waters Research:
Rasmussen Reports:
Reuters:
  • Exclusive: Up to 15 EU Banks to Fail Stress Test. Up to one in six European banks is set to fail an EU-wide financial health check, according to euro zone sources close to the stress-testing, as officials scramble to set up backstops for those at risk. The result, which the European Central Bank (ECB) and others hope will persuade investors that the EU is finally coming clean about the extent of its banks' problems, will put pressure on reluctant states to prop up lenders if they cannot raise money themselves. Euro zone sources said the European Banking Authority is set to announce within weeks that between 10 and 15 of the 91 banks being scrutinized in the tests had failed, with casualties expected in Greece, Germany, Portugal and Spain.
  • Surging China Costs Turn Some U.S. Makers Homeward. U.S. makers of everything from running shoes to refrigerators shifted much of their production overseas over the past few decades, chasing the low unit prices that foreign factories could offer as a result of their lower wages. But over time, executives said, much of those savings have been erased by other costs that crept up -- goods damaged in transit, the need to maintain traveling quality-control staffs and the need to maintain about twice as much inventory as a hedge against delays in shipping.
Die Welt:
  • European Central Bank Executive Board member Juergen Stark said he does not expect the international community to finance Greece further after July if the country does not implement its austerity plan, citing an interview. Stark added that he did not doubt the will of the Greek parliament overall to implement the agreed savings plan.
Handelsblatt:
  • The German economy may grow 4% this year and 2.3% in 2012, citing IMK research institute.
Shanghai Daily:

Bear Radar


Style Underperformer:

  • Large-Cap Value (+.77%)
Sector Underperformers:
  • 1) Tobacco -.89% 2) Oil Tankers -.71% 3) Banks +.11%
Stocks Falling on Unusual Volume:
  • EEP, PVA, MO, VGR, SPRD, ABMD, ENDP, MELI, SFSF, FRC, ABH, PHI and NLY
Stocks With Unusual Put Option Activity:
  • 1) BPOP 2) SPRD 3) EWJ 4) WDC 5) BKS
Stocks With Most Negative News Mentions:
  • 1) KR 2) BOBE 3) ANF 4) MMI 5) JASO
Charts:

Bull Radar


Style Outperformer:

  • Mid-Cap Growth (+1.51%)
Sector Outperformers:
  • 1) Oil Service +2.80% 2) Education +2.33% 3) HMOs +2.05%
Stocks Rising on Unusual Volume:
  • HOC, PTEN, LGCY, SU, FCX, HIG, CPRT, SMSC, LINC, INSM, WPRT, EZPW, HANS, SAIA, INTX, DMND, OVTI, FAST, GEVO, ALLT, NANO, INSU, VECO, FNSR, TIBX, SINA, ACN, MPR, CIX, AXE, MWW, NKE, AH, IRF, FIRE, MGM, TNAV, ATI and NPO
Stocks With Unusual Call Option Activity:
  • 1) KBH 2) HANS 3) NKE 4) ACN 5) FTNT
Stocks With Most Positive News Mentions:
  • 1) LLL 2) STX 3) OVTI 4) HD 5) WLL
Charts:

Tuesday Watch


Evening Headlines


Bloomberg:

  • Papandreou Pleads for Support, Unions Strike. Greek Prime Minister George Papandreou called on lawmakers to obey their “patriotic conscience” and back tougher austerity measures, as they began to debate a five-year budget plan that will determine whether the cash-strapped nation can avoid default. “Voting for the medium-term plan means we can close this chapter of uncertainty for the Greek people,” Papandreou said at the start of a three-day debate on the program in Parliament in Athens yesterday. “From the brink of catastrophe we are securing, colleagues, the great opportunity to change our country.” Papandreou faces his second survival test in a week tomorrow when lawmakers vote on the package of budget cuts and asset sales that’s needed before Greece can tap a fifth loan payment from last year’s 110 billion-euro ($157 billion) rescue. Failure to pass Papandreou’s 78 billion-euro plan may lead to the euro area’s first sovereign default.
  • Single Trade Lifts Oil, Gas ETF Put Volume to Six-Week High. A single options bet that oil and gas companies will extend losses lifted put volume for an exchange-traded fund tracking the industry to a six-week high. Almost 38,000 puts to sell the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) changed hands as of 4 p.m. in New York, 3.4 times the four-week average, as the fund fell 0.1 percent to $55.08. An investor sold 10,000 September $59 puts to purchase 20,000 September $54 puts, according to a report from today Susquehanna Financial Group LLLP in Bala Cynwyd, Pennsylvania. “They’re extending a winning bet,” according to Frederic Ruffy, a senior options strategist at WhatsTrading.com, a New York-based provider of options-market analytics. “They made a substantially bearish bet earlier this month and now they’re extending it and positioning themselves for further losses.”
  • The euro-region debt crisis is undermining investor trust in banks' creditworthiness, driving a measure of credit risk to the highest in more than two years. The 10-year euro swap spread rose to about 44 basis points yesterday, the most since March 2009. The spread "reflects bank-funding concern," said Robert Crossley, a fixed-income strategist at Citigroup Inc. in London. "Being long swap spreads is a way to express periphery worries without getting involved in those markets," he said. For banks in these nations, "if they can't get funding from the European Central Bank then they're in trouble."
  • China Yurun Isn't Aware of a Short Seller's Report. China Yurun Food Group Ltd. fell for the fourth day in Hong Kong trading amid speculation short seller Muddy Waters LLC may issue a report on the company. The pork producer fell 6.8 percent to HK$19.20 as of 9:53 a.m. in Hong Kong, after earlier gaining as much as 7.8 percent.
  • Hedge Funds Eye Japan Pensions Post-Quake. Global hedge funds are vying for allocations from Japan’s corporate pension fund managers, who oversee about $740 billion and are seeking alternatives to stocks following the March earthquake.
  • Money Funds in U.S. Unfazed by Greek Crisis Watch Out for Spain Contagion. The European debt crisis would pose a threat to U.S. money-market mutual funds if a rash of sovereign defaults caused big banks to fail to meet obligations within the next three months. “It would take a very rapid decline and not just in the smaller European countries” for the debt crisis to threaten U.S. money funds, George “Gus” Sauter, chief investment officer at Vanguard Group Inc. in Valley Forge, Pennsylvania, said in an interview. “You’d probably have to see Spain and Italy get into difficult shape.”
  • Tepco Faces Protests at Shareholder Meeting. Tokyo Electric Power Co. faces shareholders for the first time since the March 11 earthquake and tsunami caused meltdowns at its Fukushima Dai-Ichi plant, wiping about $36 billion off its market value. “We want you to make a courageous decision so that there will not be another Fukushima,” said Haruna Takita, 33, who came from Koriyama City, west of the plant. “Think about children and their future,” she said to shareholders standing in lines about 200 meters (660 feet) long outside the meeting venue nine minutes before it was due to start.
Wall Street Journal:
  • Ailing Greece Tries National Tag Sale. Debt-strapped Greece is about to hold an epic yard sale. For the taking: four wide-body Airbus jets, a state lottery, a state horse-racing concession and sports book, stakes in a casino, several ports, a national post office, two water companies, a nickel miner and smelter, a munitions maker, electricity and gas monopolies, a telecommunications operator, shares in a half dozen banks, hundreds of miles of roads, a defunct airport, old Olympic venues and thousands of acres of land, including magnificent stretches of Greece's famed coast.
  • SEC Broadens Probe Into Stifel Financial. U.S. securities regulators have broadened their probe of mortgage bonds sold by Stifel Financial Corp. to include whether the securities were suitable for five Wisconsin school districts that suffered steep losses on them, according to people familiar with the situation. The Securities and Exchange Commission is trying to determine if the schools should have been sold three different collateralized debt obligations pitched to them by a unit of the St. Louis company, these people said.
  • China Firms Face Research Armies. In a rundown block in an industrial section of Hong Kong, rows of researchers at a two-year-old firm called Blue Umbrella are trawling through documents such as corporate records, blogs and government watch lists. Their goal: to look for accounting discrepancies or investigate the financial claims of Chinese businesses. It is a growth industry. Investors around the world eager to profit from China's fast-growing economy want to know the risks. And hedge funds are circling over more and more Chinese stocks they want to bet against.
  • Beijing Backs Lagarde for IMF Post. Key Endorsement By Emerging Nation Comes as Fund's Board Nears Decision.
  • The Deficit Is Worse Than We Think by Lawrence B. Lindsey. Normal interest rates would raise debt-service costs by $4.9 trillion over 10 years, dwarfing the savings from any currently contemplated budget deal. Washington is struggling to make a deal that will couple an increase in the debt ceiling with a long-term reduction in spending. There is no reason for the players to make their task seem even more Herculean than it already is. But we should be prepared for upward revisions in official deficit projections in the years ahead—even if a deal is struck. There are at least three major reasons for concern. It is increasingly clear that the long-run cost estimates of ObamaCare were well short of the mark because of the incentive that employers will have under that plan to end private coverage and put employees on the public system.
MarketWatch:
CNBC:
  • Nike(NKE) Shares Jump After Big Earnings Beat. The sports-gear maker reported its earnings rose to $1.24 a share in its fiscal fourth quarter from $1.06 a year earlier. Revenue climbed to $5.8 from $5.08 billion a year earlier. Analysts had expected the company to report earnings of $1.16 a share on revenue of $5.53 billion. Net income rose 14 percent to $594 million. The stock jumped nearly 5 percent in extended trade.
Business Insider:
  • Obama Proposes $600 Billion In Tax Hikes. The White House announced today that it is seeking to raise $600 billion in revenue through new taxes and the elimination of corporate subsidies as part of a deal to lower the deficit and raise the debt ceiling. President Barack Obama is trying to ensure that any spending cuts agreed to are also offset by tax increases — something Republicans have said they will oppose at all costs.
  • Goldman Sachs(GS) Is Firing Employees In The US So It Can Hire 1,000 In Singapore. Goldman Sachs is going to fire employees in the U.S. and some other countries so that it can hire 1,000 in Singapore, where it's cheaper. Charlie Gasparino heard the news from people who were briefed on the hiring in Washington. He says Goldman gave Washington the heads up because hiring offshore is likely to cause a backlash.
  • For The Next 48 Hours, Greek Life Will Be Thrown Into "Disarray". There were no major developments from the first day of the Greek austerity debate. The debate will go through Wednesday, at which point there will be two votes.
  • Italy Can't Like The Looks Of This. (graphs) This week is all about Greece, we get that. Gun to our head, our guess is that the Greek Parliament manages to pass (barely) the austerity bill that will allow it to get another hand out and avoid default. And then when that happens, you have Greece, Portugal, and Ireland all safely ensconced (for now) under IMF-regimes that shield them from private credit markets. The problem then turns to the other two PIIGS: Spain and Italy.
Zero Hedge:
Forbes:
Department of Justice:
Chicago Tribune:
  • Blagojevich Convicted. 'I, frankly, am stunned,' former governor says after jury convicts him on 17 counts. In its 10th day of deliberations, the 11-woman, one-man jury convicted Blagojevich of several shakedown attempts, including allegations that he brazenly tried to sell President Barack Obama's old U.S. Senate seat in 2008. The decisive verdict came less than a year after the first jury to hear the case found him guilty of one criminal charge but deadlocked on the rest.
Politico:
  • Nancy Pelosi, Harry Reid Raise Money for Super PACs. House Minority Leader Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) have started raising money for Democratic “super PACs,” diving into the world of outside groups after condemning this type of fundraising in the most recent election cycle. Both Pelosi and Reid are limiting their solicitations to $5,000 or less for House Majority PAC and Majority PAC, which will spend money in House and Senate races, respectively. Liberal financier George Soros has already given tens of thousands of dollars to House Majority PAC. Pelosi’s fundraising for House Majority PAC has not been previously disclosed.
Reuters:
  • Too Soon to Judge Impact of Greek Package - S&P Exec. It is too soon to judge the ratings impact of a debt relief package involving the private sector being put together for Greece, a senior official at the Standard & Poor's rating agency told Austrian television. "I can tell you only that we cannot give a judgment on something we have not even seen," Moritz Kraemer, S&P's head of European sovereign ratings, said in an interview on Monday. Asked if he could imagine a solution in which private creditors voluntarily contribute to a Greek rescue package and S&P would not downgrade its credit rating for the country, he said: "It is conceivable depending on the situation. That is why I say that it is not possible at all to draw a final conclusion on this in the current situation." He stressed that S&P had not commented on whether a private-sector contribution to Greece's debt package could trigger a default "because we simply don't have the details." "There has been an aid package for Greece since April 2010 and one thought the problem was solved. In restrospect we can see, of course -- and we anticipated that at the time with an appropriate downgrade -- that this was not the case," he said. "We also don't think that what is being discussed now is a sustainable solution to Greece's debt problem."
Sky News:
  • Greek lawmaker Alexandros Athanasiadis, a member of the ruling Socialist party, said he told Prime Minister George Papandreou he would vote against the government's austerity measures unless plans to sell state-owned energy company PPC and the Athens Water and Sewage Treatment Company are dropped.
Kyodo News:
  • North Korea ordered universities to close until April next year as almost all students will be required to work for the nation's economic recovery, such as by providing construction labor.
Shanghai Securities News:
  • Shanghai's housing inventory is about 8.5 million square meters so far this year, compared with about 6.5 million square meters at the end of 2010, citing Shanghai Deovolente Realty.
National Business Daily:
  • China's banking regulator has ordered banks to check each discounted bill financing transaction, citing a personal familiar with the situation. Banks must check how the discounted funds are used and whether they use the discounted bills to get around lending limits. They need to report the results by July 4.
Evening Recommendations
Citigroup:
  • Reiterated Buy on (ACN), target $66.
BMO Capital:
  • Downgraded (MMI) to Underperform, target $19.
Night Trading
  • Asian equity indices are -.50% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 119.0 -3.0 basis points.
  • Asia Pacific Sovereign CDS Index 126.75 -.25 basis point.
  • S&P 500 futures +.10%.
  • NASDAQ 100 futures +.14%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (PRGS)/.38
  • (SHAW)/.69
  • (SNX)/.80
Economic Releases
9:00 am EST
  • S&P/CS 20 City MoM% Sa for April is estimated to fall -.2% versus a -.23% decline in March.
10:00 am EST
  • Consumer Confidence for June is estimated to rise to 61.0 versus 60.8 in May.
Upcoming Splits
  • (MMS) 2-for-1
  • (AMX) 2-for-1
Other Potential Market Movers
  • The weekly retail sales reports, Richmond Fed Manufacturing Index, 1-Yr T-Bill auction, 5-Yr T-Note auction, Oppenheimer Consumer Conference, CSFB Basic Materials Conference, (CLF) analyst day and the (SMSC) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by mining and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Monday, June 27, 2011

Stocks Rising into Final Hour on Short-Covering, Euro Bounce, Tech Sector Strength, Technical Buying


Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 20.30 -3.79%
  • ISE Sentiment Index 109.0 +12.37%
  • Total Put/Call .81 -21.86%
  • NYSE Arms .58 -74.31%
Credit Investor Angst:
  • North American Investment Grade CDS Index 100.75 +.72%
  • European Financial Sector CDS Index 130.83 +.52%
  • Western Europe Sovereign Debt CDS Index 241.83 +2.54%
  • Emerging Market CDS Index 232.79 -.84%
  • 2-Year Swap Spread 27.0 -2 bps
  • TED Spread 24.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .01% +1 bp
  • Yield Curve 253.0 unch.
  • China Import Iron Ore Spot $168.50/Metric Tonne -.12%
  • Citi US Economic Surprise Index -96.90 +1.0 point
  • 10-Year TIPS Spread 2.23% +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +97 open in Japan
  • DAX Futures: Indicating +59 open in Germany
Portfolio:
  • Higher: On gains in my Retail, Biotech, Medical and Tech longs
  • Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, added back (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 bounces strongly off its 200-day moving average on despite eurozone debt angst, global growth concerns, emerging market inflation fears, US debt ceiling worries and more weak US economic data. On the positive side, Internet, Software, Networking, Airline, HMO, Bank and Computer Service shares are especially strong, rising more than +1.75%. Tech shares have strongly outperformed throughout the day. As well, "growth" shares are strongly outperforming "value". The 10-year yield is bouncing +6 bps to 2.92%. The UBS-Bloomberg Ag Spot Index is dropping -.25%, oil is falling -.8% and gold is down -.4%. The Greece sovereign cds is falling -3.5% to 2,108.33 bps and the Portugal sovereign cds is declining -1.2% to 831.59 bps. On the negative side, Education, REIT, Ag, Oil Tanker and Coal shares are underperforming, rising less than +.5%. Cyclicals are underperforming. Copper is falling -1.2%. The US price for a gallon of gas is -.03/gallon today to $3.57/gallon. It is up .43/gallon in less than 5 months. The Ireland sovereign cds is gaining +2.39% to 826.39 bps, the Hungary sovereign cds is rising +3.05% to 283.22 bps, the Japan sovereign cds is gaining +1.92% to 93.0 bps, the US sovereign cds is gaining +2.36% to 54.0, the US Muni CDS Index is climbing +2.23% to 147.07 bps, the UK sovereign cds is rising +2.04% to 169.11, the Egypt sovereign cds is rising +4.21% to 319.99 bps and the Saudi sovereign cds is rising +4.1% to 101.37bps. The Ireland sovereign cds is hitting another all-time high today. The Western Europe Sovereign CDS Index is also making another record high. Eurozone cds are not confirming today's euro currency bounce higher, which is a large negative. Some of today's upside action is likely short-covering as hedge funds protect short profits at quarter-end. Breadth isn't great today and volume is lackluster. Oil and food prices are unable to bounce today despite equity strength and a bounce in the euro, which is a positive. It appears as though a rotation into less economically sensitive equities is intensifying. I would like to see better breadth/volume and a meaningful reversal lower in eurozone cds indices before feeling more comfortable in the sustainability of today's advance. I expect US stocks to trade mixed-to-higher from current levels into the close on tech sector strength, short-covering, lower energy/food prices, a bounce in the euro, bargain-hunting and technical buying.