Friday, June 12, 2009
Stocks Mixed into Final Hour as Less Financial Sector Pessimism, Short-Covering, Lower Long-term Rates Offset Profit-Taking
Posted by Gary .....at 2:29 PM
BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Financial longs, Retail longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is mildly lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is rising .14% and is high at 28.08. The ISE Sentiment Index is above average at 177.0 and the total put/call is around average at .82. Finally, the NYSE Arms has been running about average most of the day, hitting 1.02 at its intraday peak, and is currently .91. The Euro Financial Sector Credit Default Swap Index is rising 3.38% today to 106.33 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 .36% to 124.49 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising .02% 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 falling 3.2% to 42.56 basis points. The Libor-OIS spread is falling .73% to 41 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 7 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. Conflicting reports about the outcome of the Iranian election appear to be impacting trading today. The fact that US stocks rallied so easily on the news is a positive. REITs(IYR) have been leaders all day and the (XLF) trades well again on the decline in long-term rates. I still expect the (XLF) to convincingly break above its 200-day moving average over the coming days. As well, defense, utility, software, computer hardware, disk drive, telecom, medical equipment, biotech, drug, retail, restaurant, road & rail and airline shares are all higher on the day despite losses in the major averages. Barring an unexpected move back near the lows in the major averages, I plan to maintain my market exposure into the weekend. Nikkei futures indicate an +65 open in Japan and DAX futures indicate an +2 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, technical buying, lower long-term rates, diminishing financial sector pessimism, less economic fear and investment manager performance anxiety.