Wednesday, April 22, 2009

Stocks Mostly Higher into Final Hour on Less Economic Pessimism, Bargain-Hunting, Short-Covering, Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Retail longs and Medical longs. I haven’t traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 1.3% and is very high at 36.65. The ISE Sentiment Index is below average at 114.0 and the total put/call is slightly below average at .74. Finally, the NYSE Arms has been running high most of the day, hitting 1.54 at its intraday peak, and is currently 1.27. The Euro Financial Sector Credit Default Swap Index is falling 2.71% today to 154.66 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 3.08% to 185.23 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising 1.1% to 97 basis points. The TED spread is now down 366 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 1.95% to 63.0 basis points. The Libor-OIS spread is falling .95% to 90 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 9 basis points to 1.33%, which is down 131 basis points since July 7th. 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 .13%, which is down 1 basis point today. Nikkei futures indicate an +230 open in Japan and DAX futures indicate an +20 open in Germany tomorrow. Many market-leading stocks are soaring much more than the major averages today. I continue to see many significant technical breakouts in a number of different sectors. As well, the MS Cyclical Index is jumping 6.1% today. Considering the 1.2% decline in the Bank Index, today’s broad market gains are more impressive. One of my longs, (AAPL), reports after the close. The put/call open interest ratio for the stock is .94, which is at the high-end of its 2-year range. Moreover, AAPL’s short interest ratio is .85, which is at the highest level since last September. I plan to add to my long position in the stock on any meaningful weakness from current levels ahead of new product announcements, likely p/e multiple expansion and improving consumer spending this fall. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less credit market angst, diminishing economic fear, investment manager performance anxiety and bargain-hunting.

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