Friday, May 01, 2009

Stocks Mixed into Final Hour on Another Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Financial longs and Technology longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is about even, sector performance is mixed and volume is about average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling 2.14% and is very high at 35.76. The ISE Sentiment Index is about average at 142.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running high most of the day, hitting 1.45 at its intraday peak, and is currently 1.29. The Euro Financial Sector Credit Default Swap Index is falling another .55% today to 144.66 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 rising 3.87% to 164.65 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is falling 3.33% to 86 basis points. The TED spread is now down 377 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 1.78% to 57.25 basis points. The Libor-OIS spread is falling 3.52% to 79 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 8 basis points to 1.40%, which is down 124 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 .15%, which is up 3 basis points today. The broad market is consolidating recent gains again today ahead of next week’s bank stress test results and market-moving economic releases. However, select sectors and stock are powering higher again today. REITs, Homebuilders and Education Stocks are the only real areas of weakness today. One of my longs, (MS), is breaking up through its 200-day moving average, rising almost 10%. I suspect the stock will build on today’s gains next week. It is noteworthy that the 10-year TIPS spread has declined 15 basis points from yesterday’s high and gold continues to weaken, despite the jump in most commodities. The S&P 500 continues to encounter resistance at the 875-880 level. I expect it to break convincingly above this level be next week’s end. Nikkei futures indicate an +93 open in Japan and DAX futures indicate an +29 open in Germany next week. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering and diminishing credit market angst.

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