Tuesday, June 16, 2009

Stocks Lower into Final Hour on Rising Economic Worries, China Trade Tensions, More Shorting, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Biotech longs. I took profits in my (URBN) long and added to another long this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 4.71% and is very high at 32.27. The ISE Sentiment Index is below average at 111.0 and the total put/call is above average at .99. Finally, the NYSE Arms has been running high most of the day, hitting 1.79 at its intraday peak, and is currently 1.44. The Euro Financial Sector Credit Default Swap Index is rising 5.20% today to 111.0 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 rising 3.73% to 134.16 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is falling 3.11% to 45 basis points. The TED spread is now down 418 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 4.67% to 42.06 basis points. The Libor-OIS spread is falling 1.55% to 40 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 1.83%, which is down 81 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is down 1 basis point today. The most economically sensitive stocks are underperforming again today. Weekly retail sales showed deterioration for the second consecutive week. Various credit default swaps indices continue their recent surge higher. As well, China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus program, which could become a large negative. On the positive side, the market is holding up relatively well, considering today’s news. Market leading tech stocks are especially strong. Moreover, education, airline, road & rail, hmo, drug, biotech, medical and computer services stocks are all higher on the day. I plan to maintain my current market exposure barring a closing swoon. Nikkei futures indicate a -7 open in Japan and DAX futures indicate a -30 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, rising economic worries, china trade barrier concerns, rising credit market angst and greater financial sector pessimism.

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