Tuesday, February 23, 2010

Stocks Falling into Final Hour on Rising Economic Fear, Sovereign Debt Angst, More Shorting, Tax Hike Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Technology longs, Financial longs and Biotech longs. I added (IWM)/(QQQQ) hedges, added to my (EEM) short and took profits in some financial longs, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is sharply lower, almost every sector is declining and volume is slightly above average. Investor angst is very high. Today's overall market action is bearish. The VIX is rising +8.33% and is above average at 22.60. The ISE Sentiment Index is below average at 99.0 and the total put/call is high at 1.05. Finally, the NYSE Arms has been running very high most of the day, hitting 2.64 at it intraday peak, and is currently 2.25. The Euro Financial Sector Credit Default Swap Index is rising +7.49% to 91.58 basis points. The North American Investment Grade CDS Index is rising +2.63% to 92.93 basis points. The TED Spread is down -2 basis point to 15.0 basis points. The 2-Year Swap Spread is down -3.66% to 27.70 basis points. The Libor-OIS Spread is down -1 basis point to 9.0 basis points. The 10-Year TIPS Spread is down -5 basis points to 2.21%. The 3-Month T-Bill is yielding .11%, which is up +2 basis points today. Gold, Coal, Homebuilding, Semi, Steel and Oil Tanker shares are especially weak today, falling -2.5%+. Market leading stocks are underperforming. The Western Europe Sovereign CDS Index is jumping +5.1%, which is the first meaningful increase of late. The euro continues to trade heavy and it appears another move lower in the currency is likely. As well, Shanghai continues to trade poorly after their holiday break. On the positive side, Education, Restaurant, Retail and Computer Service shares are holding up well today. The Transports are also displaying relative strength. Given the economic data today out of Europe/US and the rise in key CDS indices, I am surprised stocks aren't down more. This resiliency is a positive. Nikkei futures indicate a down -162 open in Japan and DAX futures indicate an up +6 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on tax hike worries, political concerns, rising sovereign debt worries, increasing economic fears and more shorting.

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