Monday, June 22, 2009
Stocks Sharply Lower into Final Hour on Rising Economic Fear, Financial Sector Pessimism, More Short-Selling
Posted by Gary .....at 3:31 PM
BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Technology longs, Medical longs and Financial longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is about average. Investor anxiety is high. Today’s overall market action is very bearish. The VIX is rising 11.33% and is very high at 31.16. The ISE Sentiment Index is below average at 124.0 and the total put/call is above average at .95. Finally, the NYSE Arms has been running high most of the day, hitting 2.67 at its intraday peak, and is currently 1.55. The Euro Financial Sector Credit Default Swap Index is rising 4.87% today to 118.0 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 4.91% to 145.69 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is falling 4.31% 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 falling 6.47% to 46.06 basis points. The Libor-OIS spread is rising .70% to 37 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8 basis points to 1.85%, which is down 79 basis points since July 7th. The 3-month T-Bill is yielding .19%, which is up 2 basis points today. Today’s news hasn’t been that bad or surprising, thus the market’s sharp negative reaction is more worrisome. The most economically sensitive stocks(which I cautioned about several weeks ago due to the rise in energy prices and mortgage rates) are once again under the most pressure, with the MS Cyclical Index falling 4.33%. I continue to believe the very crowded “reflation” trade will underperform over the intermediate-term. On the positive side, telecom, utility, computer service and retail shares are substantially outperforming today. Nikkei futures indicate an -186 open in Japan and DAX futures indicate an +8 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, healthcare reform worries, rising economic fear and great financial sector pessimism.