Tuesday, January 26, 2010

Stocks Reversing Lower into Final Hour on Political Fears, China Bubble Worries, More Shorting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs, Retail longs and Emerging Market shorts. I have not traded today, thus leaving the Portfolio 50% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is above-average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling -8.30% and is above-average at 23.30. The ISE Sentiment Index is very low at 64.0 and the total put/call is around average at .83. Finally, the NYSE Arms has been running around average most of the day, hitting 1.40 at its intraday peak, and is currently 1.12. The Euro Financial Sector Credit Default Swap Index is falling -5.04% to 72.82 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 -2.6% to 93.70 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 19 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10th, 2008. The 2-year swap spread is falling -.10% to 29.78 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +1 basis point to 2.33%, which is down -32 basis points since July 7th, 2008. The 3-month T-Bill is yielding .06%, which is up +1 basis point today. Small-caps and cyclicals are underperforming today. As well, emerging market and financial shares have traded poorly throughout the day. The Japan sovereign debt cds is surging another 3.9% today to 88.34 bps. On the positive side, Utility, Coal, Disk Drive, Drug, Hospital, Retail, Restaurant, Education and Road & Rail shares are especially strong, rising .5%. Market leading stocks are outperforming. Considering the decline in Asian shares overnight and some negative news items today, the market is displaying good resilience. I want to see how Asia reacts tonight before further shifting market exposure. Shares of (AAPL) are rising 1.4% today. The stock now trades at a forward p/e of 18.7 conservative estimates, according to Bloomberg. I suspect the new tablet device will be a much bigger hit than most expect. As well, it isn’t even factored into earnings projections. (AAPL) is arguably the cheapest large-cap high quality growth stock in the world right now, in my opinion. I will add to my long position on any market-related meaningful decline in the shares from current levels. Nikkei futures indicate an +15 open in Japan and DAX futures indicate a -8 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, political fears and China bubble worries.

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