Thursday, June 11, 2009

Stocks Higher into Final Hour on Lower Long-Term Rates, Short-Covering, Technical Buying

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Technology longs, Biotech longs and Medical longs. I covered all my (IWM)/(QQQQ) hedges and 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 above average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 4.08% and is high at 27.30. The ISE Sentiment Index is slightly below average at 128.0 and the total put/call is slightly below average at .78. Finally, the NYSE Arms has been running about average most of the day, hitting .90 at its intraday peak, and is currently .83. The Euro Financial Sector Credit Default Swap Index is rising 2.29% today to 103.17 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 .77% to 124.94 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is falling 1.57% to 46 basis points. The TED spread is now down 417 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is declining 2.25% to 46.06 basis points. The Libor-OIS spread is rising .03% to 42 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 9 basis points to 2.0%, which is down 64 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. It is a large positive to see the 10-year yield reverse 15 basis points lower from its session high. The (XLF) is pushing up through its 200-day moving average for the first time in about 2 years, which is a major broad market positive. The AAII % Bulls fell to 39.25% this week, while the % Bears rose to 39.25%, which is also a positive considering recent gains. One of my longs, (ISRG) is breaking convincingly higher through its 200-day moving average on above average volume after (CHDX) made positive comments regarding sales of the da Vinci surgical system in China. I still see substantial upside to the shares from current levels. Nikkei futures indicate an +100 open in Japan and DAX futures indicate an +7 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, technical buying, lower long-term rates, less economic fear and investment manager performance anxiety.

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