Monday, November 17, 2008

Stocks Lower into Final Hour on Global Growth Worries, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is bearish as the advance/decline line is lower, almost every sector is declining and volume is about average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is rising 1.4% and is very elevated at 67.24. The ISE Sentiment Index is below average at 110.0 and the total put/call is slightly above average at .94. Finally, the NYSE Arms has been running above average most of the day, hitting 1.49 at its intraday peak, and is currently .86. The Euro Financial Sector Credit Default Swap Index is up 5.0% today to 111.83 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 up 3.6% to 209.0 basis points. The TED spread is rising 2.0% to 215 basis points. The TED spread is now down 249 basis points in about five weeks. The 2-year swap spread is falling 4.4% to 107.75 basis points. The Libor-OIS spread is rising 1.47% to 176 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 2 basis points to .76%, which is down 186 basis points in under five months and at the lowest level since December 1998. Trading is very sloppy today with a lot of conflicting market indicators. The bears are likely disappointed they are unable to gain real traction with another meaningful decline in the (XLF) and weakness in European bourses. However, bulls are likely frustrated by the fact that the major averages are unable to even bounce after steep losses and better action in some Asian indices overnight. It is noteworthy that breadth isn’t too bad and the Russell 20000 is significantly outperforming. Oil continues to trade very poorly, notwithstanding recent potential upside catalysts. Nikkei futures indicate an +48 open in Japan and DAX futures indicate an +73 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, financial sector pessimism and global growth worries.

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