Thursday, January 20, 2011

Stocks Falling into Final Hour on China Inflation Fears, Soaring Long-Term Rates, Profit-Taking, Technical Selling


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Slightly Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.68 +2.08%
  • ISE Sentiment Index 102.0 +18.60%
  • Total Put/Call .94 +14.63%
  • NYSE Arms .84 -64.69%
Credit Investor Angst:
  • North American Investment Grade CDS Index 85.63 +3.03%
  • European Financial Sector CDS Index 150.29 bps -2.39%
  • Western Europe Sovereign Debt CDS Index 185.17 bps -2.54%
  • Emerging Market CDS Index 202.68 +.43%
  • 2-Year Swap Spread 23.0 unch.
  • TED Spread 15.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .15% unch.
  • Yield Curve 282.0 +6 bps
  • China Import Iron Ore Spot $185.40/Metric Tonne +1.48%
  • Citi US Economic Surprise Index +39.20 -8.0 points
  • 10-Year TIPS Spread 2.31% -5 bps
Overseas Futures:
  • Nikkei Futures: Indicating +78 open in Japan
  • DAX Futures: Indicating +40 open in Germany
Portfolio:
  • Slightly Higher: On gains in my ETF hedges and Retail/Medical long positions
  • Disclosed Trades: Covered my (IWM)/(QQQQ) hedges and then added them back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower, despite mostly positive economic data and diminishing eurozone sovereign debt angst. On the positive side, I-Banking, Retail and Education shares are especially strong, rising more than 1.0% today. (XLF) has outperformed throughout the day. Lumber is rising +2.2%. The Spain sovereign cds is declining -2.25% to 276.59 bps, the Belgium cds is falling -2.54% to 188.63 and the Japan sovereign cds is falling -3.24% to 82.72 bps. The Western Europe Sovereign CDS Index is now -33 bps off its record high set on January 11. Moreover, the US Muni CDS Index is dropping -2.41% to 209.13 bps. The AAII % Bulls fell to 50.7 this week, while the % Bears rose to 29.10, which is a mild positive. On the negative side, Road & Rail, HMO, Networking, Disk Drive, Computer, Ag and Oil Tanker shares are under significant pressure, falling more than 2.0%. Tech shares have underperformed substantially throughout the day. Small-cap and Cyclical shares have also underperformed again today. Copper is falling -2.76%. The China sovereign cds is rising +2.35% to 78.03 bps, the Russia sovereign cds is jumping +3.05% to 146.12 bps and the Emerging Markets Sovereign CDS Index is gaining another +4.17% to 196.29 bps. Rough Rice futures have surged +9% in five days. China's 7-day Repo Rate is jumping another +198 bps today to 6.03% on tightening concerns. January option expiration is tomorrow and the DJIA has declined 10 of the last 12 with big losses seen in 2003, 2006 and 2010. The DJIA is holding up very well and is just about -50 points off its recent high. So far, it appears this is just a healthy pullback after recent sharp gains rather than the beginning of a significant decline. However, inflation in emerging markets appears to be more of a problem than is generally perceived and will likely be the catalyst for a more significant decline last this quarter. One of my longs, (GOOG), reports after the close today. I expect a good report, however estimates have risen meaningfully over the last week and tech is currently underperforming, which could limit any near-term upside reaction in the shares. I will look to add to my position on any meaningful pullback from current levels. I expect US stocks to trade modestly lower into the close from current levels on China inflation fears, profit-taking, technical selling, rising long-term rates and more shorting.

3 comments:

Anonymous said...

http://online.barrons.com/article/SB50001424052970204126004576094243328821286.html

Anonymous said...

http://www.economist.com/node/17966936?story_id=17966936&fsrc=rss

theyenguy said...

Google, GOOG, -0.8% and Amazon, AMZN, -2.6% are part of a the larger group of Dow Internet Stocks, FDN, -1.8%, that sold off today. Its wise for traders to take gain on these at this time.

And then buy and take physical possession of gold as it dips lower so as to be well prepared for the great stock sell off and be invested far, far away from any and all brokerages.