Friday, July 17, 2009

Stocks Mostly Lower into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Defense longs, Medical longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is below average. Investor anxiety is high. Today’s overall market action is slightly bullish. The VIX is falling 5.19% and is high at 24.10. The ISE Sentiment Index is around average at 149.0 and the total put/call is below average at .71. Finally, the NYSE Arms has been running very high most of the day, hitting 1.73 at its intraday peak, and is currently 1.29. The Euro Financial Sector Credit Default Swap Index is falling 4.04% today to 98.36 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 3.60% to 130.02 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is falling 2.11% to 34 basis points. The TED spread is now down 432 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 3.78% to 46.38 basis points. The Libor-OIS spread is falling .40% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 8 basis points to 1.86%, which is down 78 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Despite (GOOG), (GE), (IYR) and recent broad market gains, the major averages are holding up very well today. The NYSE Arms has been running high today with below average volume, which is a positive. Tech shares are especially strong, with the MS Tech Index gaining .56%. As well, homebuilders are standouts on the upside, rising 1.2%. Google’s weakness isn’t too surprising given how far it has come this year, rising earnings expectations and low short interest. However, it would be a big long-term positive for the shares if the company is finally turning YouTube profitable. I remain long the stock and will add on any significant weakness in the shares from current levels. Nikkei futures indicate an +120 open in Japan and DAX futures indicate an +16 open in Germany on Monday. I expect US stocks to trade mixed into the close from current levels as short-covering, investment manager performance anxiety and less economic pessimism offset profit-taking, higher energy prices and higher long-term rates.

No comments: