Monday, March 12, 2012

Stocks Slightly Higher into Final Hour on Euro Bounce, Lower Energy Prices, Short-Covering, Investor Performance Angst


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 16.05 -6.20%
  • ISE Sentiment Index 110.0 +18.28%
  • Total Put/Call 1.05 +16.67%
  • NYSE Arms 1.23 +6.77%
Credit Investor Angst:
  • North American Investment Grade CDS Index 95.71 +.89%
  • European Financial Sector CDS Index 172.98 +4.36%
  • Western Europe Sovereign Debt CDS Index 358.76 +2.04%
  • Emerging Market CDS Index 237.95 -.45%
  • 2-Year Swap Spread 25.75 -.25 bp
  • TED Spread 39.75 -.25 bp
  • 3-Month EUR/USD Cross-Currency Basis Swap -63.50 +2.25 bps
Economic Gauges:
  • 3-Month T-Bill Yield .08% unch.
  • Yield Curve 171.0 unch.
  • China Import Iron Ore Spot $143.30/Metric Tonne +.49%
  • Citi US Economic Surprise Index 38.30 -.7 point
  • 10-Year TIPS Spread 2.29 unch.
Overseas Futures:
  • Nikkei Futures: Indicating -16 open in Japan
  • DAX Futures: Indicating +15 open in Germany
Portfolio:
  • Higher: On gains in my Tech, Retail and Medical sector longs
  • Disclosed Trades: None
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near recent highs despite high energy prices, rising Eurozone debt angst and rising global growth fears. On the positive side, Utility, and REIT shares are especially strong, rising more than +.75%. Oil is falling -.88% and Gold is down -.69%. On the negative side, Coal, Oil Service, Steel, Semi, Networking, Hospital, HMO, Construction, Education and Airline shares are under pressure, falling more than -1.0%. Lumber is down -.92%, Copper is down -.39% and the UBS-Bloomberg Ag Spot Index is rising +.29%. The Transports have lagged throughout the day. The 10Y T-Note Yield at 2.03%, remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. As well, the Philly Fed/ADS Real-Time Business Conditions Index is down -14.0% over the last 5 days and continues to trend lower from its mid-December peak. 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 around -50.0% ytd. The Western Europe Sovereign CDS Index is breaking back above its 50-day moving average for the first time since December and is only 28.0 bps away from its all-time high set on Jan. 9th. 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 -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +705.5% 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 were mixed overnight as Taiwan fell -1.10% and India gained +.48%. Major European indices fell around -.5%, led lower by a -1.24% decline in Spanish shares. Spain is now down -4.51% ytd, which remains a red flag for the region. The Bloomberg European Financial Services/Bank Index fell -1.31%. Investors are shunning the new Greek bonds even as yields surge above those seen in Iraq, Venezuela and Pakistan. While the current European “can-kicking” may satisfy politicians’ needs for short-term stability, I continue to believe their recent actions will eventually result in an even more intense debt crisis over the intermediate-term. US stocks continue to consolidate recent gains in a healthy fashion, however investor complacency remains fairly high given the macro backdrop. Volume remains poor, but should pick up later in the week on the FOMC announcement and triple witching. I am still looking for signs that another pullback is developing. 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. Two of my longs, (AAPL) and (ISRG), are hitting new highs again today and continues to trade extraordinarily well. While the stocks are extended short-term, I still expect meaningful outperformance for the shares over the intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on a bounce in the euro, short-covering, investor performance angst and lower energy prices.

No comments: