Tuesday, December 23, 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 Retail longs. I haven’t traded today, thus leaving the Portfolio 75% net long. The tone of the market is bearish as the advance/decline line is lower, most sectors are declining and volume is very light. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is rising .58% and is elevated at 44.77. The ISE Sentiment Index is about average at 140.0 and the total put/call is below average at .76. Finally, the NYSE Arms has been running high most of the day, hitting 1.55 at its intraday peak, and is currently 1.25. The Euro Financial Sector Credit Default Swap Index is falling .23% today to 114.25 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 1.25% to 210.84 basis points. The TED spread is falling .96% to 146 basis points. The TED spread is now down 320 basis points in just over two months. The 2-year swap spread is down 4.30% to 66.75 basis points. The Libor-OIS spread is rising 1.47% to 124 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 3 basis points to .11%, which is down 250 basis points in just five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .00%, which is unch. today. A number of market-leading stocks are in positive territory today despite the broad market’s low-volume decline. Financials are heavy again today. Brazilian stocks are also notably weak, falling 3%. The Bovespa is 9% lower over the last five days. I still expect another surge higher in US stocks to occur over the next few days. Nikkei futures indicate a -168 open in Japan and DAX futures indicate an +26 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, diminishing credit market angst, bargain-hunting and short-covering.

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