Thursday, January 31, 2008
Stocks Soaring on Heavy Volume into Final Hour on Less Extreme Economic Pessimism
Posted by Gary .....at 2:44 PM
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, Internet longs, Semi longs and Biotech longs. I covered all my (IWM)/(QQQQ) hedges, added to my (WMS)/(PWR) longs and covered some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is above average, despite today’s gains. Today’s overall market action is very bullish. The VIX is falling 5.0% today, but remains high at 26.0. The total put/call hit an above average 1.14 and the ISE Sentiment Index hit a depressed 72.0 today. Moreover, the 3-month T-Bill yield is plunging 21 basis points to 1.94%, the lowest since October 2004. Short interest on the S&P 500 is at the highest level since January 2002. I still suspect a very large percentage of the investors are watching the long side from the sidelines, convinced that a complete retest of the lows or new lows are a certainty. Gartner Group said today that (AAPL) would get over 12% of the US PC market by 2011. I think that is a conservative estimate. The 30-day asset backed commercial paper yield is dropping another 22 basis points today to 3.22%, the lowest since June 2005. The 10-year/TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 2.33% today, down from 2.48% in November, despite the huge stimuli that will hit the economy over the next year. The JPMorgan Emerging Market Bond Index has risen .32% over the last five days and the Bear Stearns High Yield Index has surged 1.9% over that period. Fed fund futures imply a 74% chance for another 50 basis point rate at the March 18 meeting. In my opinion, the Fed is now “ahead of the curve.” Nikkei futures indicate an +100 open in
Japan and DAX futures indicate an +100 open in . I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism, lower energy prices and bargain-hunting.