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Friday, November 06, 2009

Stocks Slightly Lower into Final Hour on Profit-Taking, Economic Worries and Financial Sector Pessimism 

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Retail longs and Defense 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 slightly below average. Investor anxiety is very high. Today’s overall market action is neutral. The VIX is falling -4.01% and is high at 24.41. The ISE Sentiment Index is around average at 149.0 and the total put/call is high at 1.12. Finally, the NYSE Arms has been running above average most of the day, hitting 1.20 at its intraday peak, and is currently 1.19. The Euro Financial Sector Credit Default Swap Index is falling -.84% today to 66.50 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 -.46% to 102.96 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is down -1 basis point to 23 basis points. The TED spread is now down 441 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down -2.35% to 33.81 basis points. The Libor-OIS spread is unch. at 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +1 basis point to 2.16%, which is down 49 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is up +1 basis point today. Growth stocks are outperforming value stocks today. Airline, gold, road & rail, gaming, restaurant, hmo, biotech and retail shares are especially strong, rising 1%+. Overall, today’s action appears to be a healthy low volume consolidation of recent gains. This action is even more positive, considering the jump in the headline unemployment rate. Investors are likely anticipating a topping of unemployment around current levels after the recent massive productivity surge and uptick in temp hiring. Investor angst has risen throughout the day, despite the major averages moves off session lows, which is also a positive. I still expect US stocks to build on this week’s gains next week, which should begin to result in another uptick in investment manager performance anxiety into a seasonally strong period for stocks through year-end. Nikkei futures indicate an +6 open in Japan and DAX futures indicate an +6 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, short-covering, earnings optimism and lower long-term rates.
Posted by: Gary / 3:25 PM
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