Friday, May 02, 2008

Stocks Mostly Lower into Final Hour on Rise in Energy Prices, Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Medical longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly bearish as the advance/decline line is mildly lower, most sectors are declining and volume is about average. Investor anxiety is about average. Today’s overall market action is neutral. The VIX is falling .2%, but remains above average at 18.8. The ISE Sentiment Index is below average at 115.0 and the total put/call is around average at .91. Finally, the NYSE Arms has been running above average most of the day and is currently 1.12. The US dollar continues to trade well. Since March 26th, the Citi Eurozone Economic Surprise Index has fallen from +78.50 to -19.50, while the US Economic Surprise Index has climbed to -58.2 from -100.6. This is a large positive for the US currency. The G-7 Currency Volatility Index(VXY) is falling 4.6% to 10.4, which is the lowest reading since February 28th. The TED spread is falling another 11 basis points today to 128 basis points, which is the lowest since February 29th. According to, the average 30-year fixed rate mortgage is falling 8 basis points today to 5.72%, which is the lowest in a couple of weeks and down from 6.12% in March. The European Financial Sector Credit Default Swap Index is falling another 10% today to 53.4 basis points. This is another new low and down from 131.41 on March 21, which is also a big positive. The financial sector(XLF) is flat on the day, but continues to trade well considering the news. Google Inc.(GOOG) is pulling back today ahead of a likely (MSFT)/(YHOO) deal announcement. I continue to believe that combination is a long-term positive for Google(GOOG) and will prove to be a large mistake for MSFT. Any further meaningful weakness in GOOG shares related to the deal would provide investors with another excellent entry point, in my opinion. Nikkei futures indicate an +116 open in Japan and DAX futures indicate an +17 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, technical buying and less economic pessimism.

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