Gary Smith’s Market Take

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Here’s my take on the markets today, November 19th, 2012. If you’d like to read more of my articles, click here.

Credit gauges are mostly improving today. The Libor-OIS Spread is falling -5.7% to 16.5 bps. The 3M EUR/USD Cross-Currency Basis Swap is rising +4.1% to -28.9 bps. The 2Y Swap Spread is falling -8.5% to 13.0 bps(+10.1% in 5 days). The European Investment Grade CDS Index is falling -4.4% to 131.7 bps. The European Financial Sector CDS Index is down -6.1% to 175.5 bps. The Germany sovereign cds is down -3.9% to 31.1 bps. The Spain sovereign cds is falling -2.8% to 341.81 bps. The Italy sovereign cds is down -4.0% to 296.83 bps. The Portugal sovereign cds is down -2.9% to 622.66 bps. The Brazil sovereign cds is down -3.35% to 104.46 bps. The Israel sovereign cds is falling -2.4% to 156.38 bps(+6.2% in 5 days). However, the Western Europe Sovereign CDS Index is gaining +2.0% to 121.31 bps. The Spain 10Y Yld is rising +.44% to 5.90%. The Ireland sovereign cds is rising +.7% to 197.83 bps. The China Blended Corporate Spread Index is rising +.25% to 404.0 bps.

Major Asian indices were mostly higher overnight led by a +1.4% gain in Japan(+5.5% in 5 days). The Shanghai Comp was flat and continues to trade poorly(-3.0% in 5 days). Major European indices are rising today, led higher by a +3.0% gain in Italy. The Bloomberg European Bank/Financial Services Index is jumping +3.5%. Brazil is gaining +1.9%.

The euro is gaining +.5% today and is bumping up against its downward sloping 200-day. Oil(+2.4%) and copper(+2.2%) are higher, as well. Lumber is gaining +1.7% and continues to consolidate recent gains in a healthy fashion. China’s benchmark Iron-Ore Spot Index is unch. today, but is still -32.2% lower since 9/7/11. The UBS-Bloomberg Ag Spot Index is gaining +1.6%. Gold is gaining +1.3% and is back near its 50-day moving average. The 10Y T-Note continues to trade too well, with the yield rising just +3 bps today to 1.61%.

While stocks were very oversold and due for a bounce, today’s US fiscal cliff solution hopes seem overdone. I expect the recent stock bounce to last a bit longer, however equity weakness will likely resurface shortly after Thanksgiving as US fiscal cliff political rhetoric takes on a decisively more combative tone leading up to a can-kicking or disappointingly small deal. Moreover, while European leaders may have applied another Greek band-aid, the big picture in the region continues to deteriorate.

Breadth is healthy today, but there is a lack of big volume/gainers given a +1.7% S&P 500 gain. Market-leader Apple Inc.(AAPL) is surging +6.0% today, building on Friday’s key reversal. While a market-related pullback in the shares is likely over the coming weeks, a full retest of Friday’s low is unlikely at this point. Long AAPL. Commodity, Financial, Gaming and Retail shares are outperforming, while Utility, Drug and Eduction stocks are lagging today. I covered some more of my index trading hedges this morning and I am positioned 75% net long.

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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.