Thursday, February 05, 2009

Stocks Higher into Final Hour on Less Extreme Economic Fear, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Retail longs, Financial longs, Internet longs and Computer longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling -1.25% and is very high at 43.30. The ISE Sentiment Index is above average at 171.0 and the total put/call is below average at .77. Finally, the NYSE Arms has been running above average most of the day, hitting 3.34 at its intraday peak, and is currently .59. The Euro Financial Sector Credit Default Swap Index is falling 1.43% today to 114.0 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 rising 2.1% to 198.0 basis points. The TED spread is rising 2.42% to 97 basis points. The TED spread is now down 369 basis points in under four months. The 2-year swap spread is falling 2.23% to 65.75 basis points. The Libor-OIS spread is falling .67% to 97 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 1.10%, which is down 160 basis points in under seven months. 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 .27%, which is down 2 basis points today. Considering today’s news the broad market reversal higher on very healthy volume is a big positive. “Growth” stocks are again substantially outperforming “value” shares. Market-leading stocks are also much stronger than the broad market. The US sovereign debt credit default swap is plunging 14.1% today to 70.30, which is also a big positive. One negative I see today is the weakness in the REIT sector. The AAII % Bulls fell to 24.63%, while the % Bears fell to 44.0% this week, which remains a positive. Nikkei futures indicate a +240 open in Japan and DAX futures indicate an +46 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting and less extreme economic pessimism.

No comments: