Monday, January 03, 2011

Stocks Surging into Final Hour on More Economic Optimism, Less Financial Sector Pessimism, Short-Covering, Fund Inflows


Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.44 -1.75%
  • ISE Sentiment Index 175.0 +73.27%
  • Total Put/Call .62 -36.73%
  • NYSE Arms .55 -48.59%
Credit Investor Angst:
  • North American Investment Grade CDS Index 82.78 -2.82%
  • European Financial Sector CDS Index 152.10 bps -.32%
  • Western Europe Sovereign Debt CDS Index 206.50 bps +.81%
  • Emerging Market CDS Index 194.81 -3.37%
  • 2-Year Swap Spread 19.0 -1 bp
  • TED Spread 18.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .12% unch.
  • Yield Curve 273.0 +3 bps
  • China Import Iron Ore Spot $170.10/Metric Tonne n/a
  • Citi US Economic Surprise Index +14.60 unch.
  • 10-Year TIPS Spread 2.30% +2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +127 open in Japan
  • DAX Futures: Indicating unch. open in Germany
Portfolio:
  • Higher: On gains in my Medical, Tech, Biotech, Retail and Ag long positions
  • Disclosed Trades: Added slightly to my (TFM) long, took profits in another long
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades substantially higher despite recent stock gains, China inflation worries and euro sovereign/US municipal debt concerns. On the positive side, Airline, Homebuilding, HMO, Hospital, Bank, Disk Drive, Internet, Paper, Steel, Alt Energy and Coal shares are especially strong, rising more than 2.0%. Cyclicals and small-caps are strongly outperforming. Lumber is surging +3.1%. The Citi Asia Economic Surprise Index is jumping +10.3 points today to 25.0, which is the best level since mid-October. The 10-year yield is rising +4 bps, but is near session lows at 3.33%, despite recent positive economic data, the equity rally, the rise in commodities and "hot" prices paid readings. The euro currency is trading poorly today given the rise in equities and better manufacturing data out of Europe. On the negative side, Semi and Oil service shares are down slightly on the day. The Belgium sovereign cds is climbing +2.2% to 222.73 bps and the UK sovereign cds is jumping +5.53% to 76.41 bps. The Euro Financial Sector CDS Index remains near its highest level since mid-June and the Western Europe Sovereign CDS Index is right at a record high, despite the recent bounce in the euro currency. The broad market continues to trade very well as it slowly grinds higher. I suspect it can run further in the short-run before a meaningful pullback commences later this quarter. I expect US stocks to trade mixed-to-higher into the close from current levels on equity fund inflows, short-covering, technical buying, stable long-term rates, less financial sector pessimism, more economic optimism and buyout speculation.

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