Tuesday, June 03, 2008

Stocks Lower into Final Hour on Financial Sector Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Software longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is slightly bearish as the advance/decline line is lower, most sectors are declining and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is mildly bearish. The VIX is rising 1.92% and remains above average at 20.2. The ISE Sentiment Index is low at 110.0 and the total put/call is above average at 1.14. Finally, the NYSE Arms has been running above average most of the day and is currently 1.06. The (XLF) is only down .12% today, notwithstanding rising worries about Lehman(LEH). The European Financial Sector Credit Default Swap Index is increasing another 2.1% today to 72.44 basis points. As well, the TED spread is falling 2.3% today to .83. The 10-year TIPS spread, a good gauge of inflation expectations, is declining to 2.45% on the fall in commodity prices, which is down from 2.59% nine days ago. The decline in commodity prices is a major US broad market positive, however further declines are likely necessary before investors begin to anticipate these positives. A number of sectors are rising today, despite the losses in the major averages. Tech stocks are relatively strong again. One of my longs, (GILD), made a new all-time high today and is up 20.2% year-to-date. This company remains my favorite biotech and the sector should do well going forward given the macro backdrop. Nikkei futures indicate a +6 open in Japan and DAX futures indicate a -28 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting and short-covering.

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