Friday, June 19, 2009

Stocks Higher into Final Hour on Lower Energy Prices, Falling Long-Term Rates, Short-Covering

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Medical longs and Technology longs. I covered all my (IWM)/(QQQQ) hedges today, 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 high. Today’s overall market action is mildly bullish. The VIX is falling 5.66% and is high at 28.33. The ISE Sentiment Index is below average at 113.0 and the total put/call is slightly above average at .90. Finally, the NYSE Arms has been running above average most of the day, hitting 1.41 at its intraday peak, and is currently .97. The Euro Financial Sector Credit Default Swap Index is falling 2.06% today to 113.05 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 1.8% to 138.87 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising .72% to 44 basis points. The TED spread is now down 420 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 1.2% to 49.25 basis points. The Libor-OIS spread is falling .77% to 37 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 1.93%, which is down 71 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. The Nasdaq is substantially outperforming the other major averages today, despite weakness in (RIMM) shares. The sell-off in (RIMM) looks overdone to me ahead of many new product announcements over the coming months. (MSFT) has recently become a positive influence on the Naz instead of a drag. The stock looks the best it has in a long time technically, which could further propel Nasdaq outperformance. The weakness in oil is noteworthy given today’s dollar weakness and worries over a flare-up in violence in Iran over the weekend. On the negative side, breadth continues to underwhelm. Nikkei futures indicate an +109 open in Japan and DAX futures indicate a -4 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, short-covering, lower long-term rates and less financial sector pessimism.

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