Friday, July 25, 2008
Stocks Higher into Final Hour on Plunge in Oil, Less Economic Pessimism, Short-Covering
Posted by Gary .....at 3:30 PM
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Alternative Energy longs, Biotech longs, Computer longs and Internet longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, sector performance is mostly positive and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is bullish. The VIX is falling 3.5% and is still above-average at 22.60. The ISE Sentiment Index is low at 110.0 and the total put/call is about average at .85. Finally, the NYSE Arms has been running slightly above average most of the day and is currently 1.08. The Euro Financial Sector Credit Default Swap Index is rising 2.2% today to 79.67 basis points. This index is up from a low of 52.66 on May 5th, but down from 129.46 basis points on March 20th. The North American Investment Grade Credit Default Swap Index is +.65% today to 135.33 basis points. The TED spread is falling another 7.22% to 1.07. The TED spread is now down 40 basis points in 10 days. It is down 133 basis points from its August 2007 high. The 10-year TIPS spread, a good gauge of inflation expectations, has dropped 32 basis points in 14 days to 2.32% on the fall in commodities. This remains a large positive. The fact that the broad market is able to move higher today with weakness in the financial sector is also a positive. Small-caps and growth stocks are especially strong. Russian stocks plunged 5.6% last night and are now down 22% from their record high. Russian equities now join the other BRIC markets in bear market territory(
Shanghai -53.2%, India -32.7% and -22.6%). I still see further weakness in all four over the intermediate-term. The Citi US economic surprise index is now up to +35.10, while the Eurozone economic surprise index has fallen to -149.80. This is the largest discrepancy I have ever seen. I suspect the US dollar, which rose .92% this week, will make another push higher next week. Nikkei futures indicate an +116 open in Brazil Japan and DAX futures indicate an +10 open in on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on falling energy prices, short-covering and less economic pessimism.