Friday, April 11, 2008

Stocks Sharply Lower into Final Hour on Economic Pessimism, GE Earnings Report

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Alternative Energy longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is very bearish as the advance/decline line is substantially lower, almost every sector is declining and volume is below average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 6.1% and remains above average at 23.4. The ISE Sentiment Index is a very low 84.0 and the total put/call is a high 1.30. Finally, the NYSE Arms has been running very high most of the day and is currently 2.13. Considering the news today the financial sector is holding up better than I would have expected. The (XLF) is off session lows, down 1.3%. In my opinion, the market is severely overreacting to the (GE) news. During arguably the greatest global economic boom in history over the last five years, the company has dramatically underachieved. With market volume below average(even with the massive GE volume) and the NYSE Arms at a very high level, it wouldn’t take much buying to see a meaningful bounce into the close. I suspect we will quickly recoup much of today’s losses early next week. Nikkei futures indicate a -280 open in Japan and DAX futures indicate an +35 open in Germany on Monday. I expect US stocks to trade modestly higher into the close on short-covering and bargain hunting.

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