Monday, March 05, 2012

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Less Tech Sector Optimism, Rising Energy Prices, Global Growth Fears


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Declining
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 18.18 +5.15%
  • ISE Sentiment Index 88.0 -7.37%
  • Total Put/Call .93 +2.20%
  • NYSE Arms 1.31 +32.25%
Credit Investor Angst:
  • North American Investment Grade CDS Index 95.50 +1.38%
  • European Financial Sector CDS Index 166.09 +2.72%
  • Western Europe Sovereign Debt CDS Index 347.85 +.43%
  • Emerging Market CDS Index 241.98 +1.75%
  • 2-Year Swap Spread 26.50 +1.5 bps
  • TED Spread 41.50 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -70.75 +1.75 bps
Economic Gauges:
  • 3-Month T-Bill Yield .06% unch.
  • Yield Curve 170.0 -1 bp
  • China Import Iron Ore Spot $143.20/Metric Tonne unch.
  • Citi US Economic Surprise Index 48.20 +3.1 points
  • 10-Year TIPS Spread 2.21 -3 bps
Overseas Futures:
  • Nikkei Futures: Indicating -3 open in Japan
  • DAX Futures: Indicating +11 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Tech and Biotech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades lower on rising Eurozone debt angst, rising energy prices, global growth fears, less tech sector optimism, technical selling and profit-taking. On the positive side, Computer Service, Drug, REIT, Tobacco and Restaurant shares are especially strong, rising more than +.5%. Small-Caps have outperformed throughout the day. The Brazil sovereign cds is falling -1.5% to 131.40 bps. On the negative side, Coal, Alt Energy, Oil Tanker, Oil Service, Ag, Computer, Disk Drive, Airline, Steel and Semi shares are under meaningful pressure, falling more than -1.5%. Cyclicals are substantially underperforming. Tech shares have been heavy throughout the day. Copper is falling -.96%, Oil is rising +.37% and Lumber is down -1.2%. The 10Y T-Note Yield at 1.99%, remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Despite the recent positive US economic data, the Philly Fed/ADS Real-Time Business Conditions Index has declined -5.08% over the last week and continues to trend lower from its peak in mid-December. Lumber is -5.0% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauge improvement has stalled over the last few weeks and these gauges are still at stressed levels. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +707.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Major Asian indices fell around -1.25% overnight on growth worries, led by a -1.55% decline in Indian shares. Major European indices fell around -.75% today, led lower by a -1.28% decline in Spanish shares. Spain remains one of the worst-performers this year, falling -1.0% ytd. The Bloomberg European Financial Services/Bank Index fell -1.55%. The Bloomberg Coal Index has plunged -20.1% since Feb. 6 and is very close to its early Oct. low. As well, Alt Energy shares continue to trade very poorly given $100+ oil and the recent broad market rally, falling another -2.0% today. The Chinese government’s recent forecast for 7.5% growth is getting very close to the rate that many said a couple of years ago would be considered a “China hard-landing”. While I don’t expect a serious market correction yet, market risk looks moderately skewed towards the downside near-term. A sell-the-news reaction in shares of market leader Apple(AAPL), a sell-the-news reaction on an expected “blow-out” jobs report, rising oil, technical concerns(resistance/divergences), emerging markets growth worries, a surge in Eurozone debt angst and less dovish fed commentary are all potential downside catalysts near-term. I would become more aggressive on the long-side after further sideways action and then a convincing break above DJIA 13K and Naz 3K. For an intermediate-term equity advance from current levels, I would still 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 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 tech sector optimism, rising energy prices, global growth fears, technical selling and profit-taking.

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