Friday, June 26, 2009

Stocks Lower on Profit-Taking, Tax Increase Worries

BOTTOM LINE: The Portfolio is higher on gains in my Technology longs, Medical longs, Financial longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling .04% and is high at 26.34. The ISE Sentiment Index is low at 98.0 and the total put/call is about average at .80. Finally, the NYSE Arms has been running very high most of the day, hitting 1.91 at its intraday peak, and is currently 1.40. The Euro Financial Sector Credit Default Swap Index is falling .50% today to 113.67 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 .31% to 141.20 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is falling 4.35% 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 plunging 9.35% to 35.75 basis points. The Libor-OIS spread is rising .33% to 38 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8 basis points to 1.69%, which is down 95 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is up 2 basis points today. Market-leading stocks are substantially outperforming the broad market today. Tech stocks continue to display strong relative strength. As I said at the beginning of the year, I expect this trend to continue over the intermediate-term. It is noteworthy that oil is down today despite dollar weakness, Iran concerns and Nigerian pipeline attacks. The commodity appears to be rolling over again. It is a large positive to see long-term rates and inflation expectations down again today despite better-than-expected economic data. I plan to maintain my market exposure into the close, barring any significant changes. Nikkei futures indicate an +43 open in Japan and DAX futures indicate an +14 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on lower long-term rates, short-covering, diminishing financial sector pessimism, declining credit market angst, lower energy prices, quarter-end window dressing, less economic angst and investment manager performance anxiety.

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