Friday, October 31, 2008

Stocks Surging into Final Hour on Less Credit Market Angst, Diminishing Financial Sector Pessimsim, Bargain-Hunting and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Gaming longs, Biotech longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, most sectors are rising and volume is about average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 9.11% and is very elevated at 57.25. The ISE Sentiment Index is below average at 129.0 and the total put/call is above average at .98. Finally, the NYSE Arms has been running high most of the day, hitting 1.44 at its intraday peak, and is currently .66. The Euro Financial Sector Credit Default Swap Index is falling 4.28% today to 93.0 basis points. This index is up from a low of 52.66 on May 5th, but down from 157.81 on Sept. 16th. The North American Investment Grade Credit Default Swap Index is falling 1.04% to 199.35 basis points. The TED spread is falling 8.06% to 259 basis points. The TED spread is now down 205 basis points in about three weeks. The 2-year swap spread is up .63% to 120.0 basis points. The Libor-OIS spread is falling 6.64% to 237 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points to .84%, which is down 179 basis points in about four months and at the lowest level since February 1999. Many market leading stocks are posting another day of massive gains, substantially outperforming the broad market. (GS) is putting in a nice reversal today, which is helping to propel the (XLF) to session highs. As well, (AAPL), which had been under meaningful pressure early, is helping propel the Nasdaq to session highs as it recoups losses. I still think (AAPL) is an excellent buy around current levels. Gauges of credit market angst are improving at a fairly rapid rate. Nikkei futures indicate an +500 open in Japan and DAX futures indicate an +123 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism, diminishing forced selling, less credit market angst and bargain-hunting.

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