Friday, January 02, 2009

Stocks Soaring into Final Hour on Bargain-Hunting, Short-Covering and Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Technology longs, Financial longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is substantially higher, almost every sector is rising and volume is light. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 6.35% and is very high at 37.45. The ISE Sentiment Index is below average at 122.0 and the total put/call is slightly above average at .93. Finally, the NYSE Arms has been running around average most of the day, hitting 1.18 at its intraday peak, and is currently .64. The Euro Financial Sector Credit Default Swap Index is rising .54% today to 112.54 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 rising 1.27% to 200.0 basis points. The TED spread is down 1.52% to 133 basis points. The TED spread is now down 333 basis points in about eleven weeks. The 2-year swap spread is up 8.24% to 75.50 basis points. The Libor-OIS spread is rising .99% to 123 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .13%, which is down 248 basis points in about six 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 .08%, which is unch. today. Today’s overall stock gains are broad-based again. REITs are the only notably weak group today, but they may just be pausing after a 37% move higher off their November lows. Despite more weak economic data, the most economically sensitive shares are today’s top-performers. The sell-off in long-term Treasuries remains a positive development. As well, market leading stocks are substantially outperforming the broad market. It appears the US dollar’s rally has resumed, which could pressure gold if tensions calm in the Middle East. Consumer cyclical shares saw the greatest amount of insider buying during the month of December with $235, 623,071 worth of stock purchased. Individual equities with notable net insider buying during the month were V, AKAM, LNY, HRL, HOS, FCNCB, KEX, GS, CSWC, DISCA, HES, ZLC and WEN. I suspect US stocks will extend gains again on Monday. Nikkei futures indicate an +566 open in Japan and DAX futures indicate an +57 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, less economic pessimism, seasonal strength, less forced selling and short-covering.

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