Gary Smith’s Market Take

0 Flares Twitter 0 Facebook 0 0 Flares ×

Here’s my take on the markets today, October 17th, 2012. If you’d like to read more of my articles, click here.

Credit gauges are mostly improving today with some meaningfully so. The TED Spread is falling -8.1% to 21.93 bps. The 2Y Swap Spread is falling -3.9% to 8.94 bps. The European Investment Grade CDS Index is falling -4.9% to 115.66 bps. The European Financial Sector CDS Index is plunging -10.2% to 152.65 bps. The Germany sovereign cds is dropping -14.0% to 35.0 bps. The France sovereign cds is falling -11.7% to 74.79 bps. The UK sovereign cds is down -10.6% to 35.75 bps. The Italian/German 10Y Yld Spread is falling -7.7% to 313.37 bps. The Spain 10Y Yld is down -5.8% to 5.46%. However, the 3M EUR/USD Cross-Currency Basis Swap is falling -1.1% to -24.77 bps and the Latin America CDS Index is up +.25% to 110.17 bps. Overall gauges of credit remain at stressed levels.

Major Asian indices were mostly higher overnight, led by a +1.2% gain in Japan. Major European indices are higher today, boosted by a +2.3% gain in Spain. The Bloomberg European Bank/Financial Services Index is rising +.85%. Brazil is rising +.6%.

The euro(+.65%) is testing its mid-Sept. high, but still doesn’t trade that well given investor perceptions of a eurozone debt crisis bazooka can-kicking. Lumber(+3.2%) and Copper(+1.4%) are bouncing today, but also still trade poorly given all the perceived upside catalysts. Oil, which also has potential upside catalysts, is down -.2% and continues to sit out the recent equity advance. The China benchmark Iron-Ore Spot Index is rising +2.5%, but is -36.2% lower since 9/7/11. The UBS-Bloomberg Ag Spot Index is up +.2% and is +18.8% higher since 6/1. The 10Y T-Note Yld is rising +7 bps to 1.79% and is very close to its downward sloping 200-day.

The weekly MBA Home Purchase Apps Index rose +.85% this week, but remains stuck in the same range it has been in since May 2010. Singapore Electronics Exports, a gauge of tech demand, tumbled -16.4% in September after an -11.0% drop in August.

Some key market-leading stocks are underperforming again. The MS Tech Index(-.3%) continues to trade poorly, as it hovers just above its 200-day, and is down -4.3% over the last month. As well, Road & Rail shares continue to lag, which is another broad market red flag, as they test their 200-day again. Homebuilders, Financials, Biotech and Energy are leading today.

Most stocks reporting earnings/outlook shortfalls continue to get punished even as weak earnings are supposedly priced into stocks at current levels. In addition to the te mporary boosts from the European can-kicking and Fed’s ZIRP, I suspect large investors are already positioning for an end to US election uncertainty which is helping stocks now, but will likely mute an otherwise more vigorous post-election stock rally. I have not traded today and I am positioned 50% net long.

0 Flares Twitter 0 Facebook 0 0 Flares ×

Bio
Latest Posts

Gary D. Smith

Gary Douglas Smith actively trades his portfolio as well as the portfolios of family members. In addition, Mr. Smith maintains Between the Hedges, an investment-oriented blog. Previously, he was founder and managing member of Olympus Capital Management, an alternative investment firm. Olympus consisted of a long/short diversified hedge fund and a long/short technology sector hedge fund. Prior to the formation of Olympus, he spent five years as Vice-President of Research and Portfolio Manager for an independent money management firm. Mr. Smith has been engaged for the past 23 years in the analysis and selection of equity and other investments. His expertise is in long/short U.S. equity investing across all market sectors with an emphasis on technology stocks. He uses a top-down investment approach, investing in securities at a reasonable price relative to their growth prospects. As well, technical analysis plays a role in the timing of his investment decisions. He received his undergraduate degree from the University of Tennessee and subsequently received an MBA, with a concentration in finance, from Vanderbilt University’s Owen School.