Tuesday, June 30, 2009

Stocks Lower into Final Hour on Profit-Taking, Global Growth Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs, Internet longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is below average. Investor anxiety is very high. Today’s overall market action is mildly bearish. The VIX is rising 5.92% and is high at 26.85. The ISE Sentiment Index is below average at 113.0 and the total put/call is high at 1.08. Finally, the NYSE Arms has been running very high most of the day, hitting 2.76 at its intraday peak, and is currently 2.51. The Euro Financial Sector Credit Default Swap Index is falling 6.31% today to 106.0 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 2.41% to 132.46 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising .76% to 42 basis points. The TED spread is now down 422 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 10.82% to 42.06 basis points. The Libor-OIS spread is rising .56% to 38 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 8 basis points to 1.78%, which is down 86 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is down 1 basis point today. Despite the headline losses in the major averages, many market leading stocks are just slightly lower or even higher on the day. As well, breadth isn’t too bad as small-caps hug the flatline. It is also a positive to see below average volume with a very high NYSE Arms reading. REITs have been a source of strength throughout the day. Finally, the large drop in the euro financial sector credit default swap index is a big positive. I wouldn’t be surprised to see some short-covering into the close as the bears fail to gain downside traction despite a poor consumer confidence reading. Nikkei futures indicate a -68 open in Japan and DAX futures indicate an +3 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, declining credit market angst, quarter-end window dressing, lower energy prices and investment manager performance anxiety.

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