Tuesday, March 04, 2008
Stocks Mixed into Final Hour as Short-Covering Offsets Rising Credit Angst
Posted by Gary .....at 2:37 PM
BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Gaming longs, Software longs, Computer longs and Commodity shorts. I added to my (QQQQ)/(IWM) hedges this morning and then covered them this afternoon, thus leaving the Portfolio 75% net long. The overall tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is heavy. Investor anxiety is high again. Today’s overall market action is neutral. The VIX is falling .6% today, but remains high at 26.0. The ISE Sentiment Index hit a historically depressed 36.0 and the total put/call hit a high 1.34 today. Finally, the NYSE Arms has been running above average all day, hitting a very high 1.98 this morning. The 10-year swap spread is rising another 4 basis points today to 74.75 basis points over Treasuries. It is now near levels seen near prior peaks in credit market angst in August and November of last year. The odds for a 75 basis point rate cut at the upcoming Fed meeting have risen to 78.0%. I still think the odds that a cut occurs before the scheduled meeting have risen substantially of late. Cisco’s(CSCO) CEO said this afternoon that he is more confident in his long-term forecast than he was during the last conference call. He said any
downturn should be mild and short-lived. As well, rumors are swirling about an imminent bailout for troubled bond insurer Ambac(ABK). The two stocks are leading a market surge into the close. Moreover, the decline in commodities is a huge broad market positive as it gives the Fed more leeway to be more aggressive if necessary. Nikkei futures indicate a -120 open in US Japan and DAX futures indicate an +40 open in tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short covering, diminishing bond insurer angst, Fed rate cut speculation and bargain hunting.