Tuesday, February 16, 2010
Stocks Surging into Final Hour on Short-Covering, Less Economic Fear, Diminishing Financial Sector Pessimism, Technical Buying
Posted by Gary .....at 3:14 PM
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is slightly below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling -1.28% and is above average at 22.44. The ISE Sentiment Index is around average at 142.0 and the total put/call is slightly above average at .88. Finally, the NYSE Arms has been running low most of the day, hitting .37 at its intraday trough, and is currently .54. The Euro Financial Sector Credit Default Swap Index is rising +6.62% to 99.24 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 +.78% to 100.18 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is unch. at 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th, 2008. The 2-year swap spread is rising +1.37% to 29.40 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.25%, which is down -40 basis points since July 7th, 2008. The 3-month T-Bill is yielding .09%, which is unch. today. Healthcare-related shares are relatively weak. Natural gas continues to trade poorly given record winter weather in much of the country and improving economic data. The Euro financial sector cds index and Western Europe sovereign debt cds are not confirming recent global equity strength. The euro is finally rising meaningfully from its technically oversold state on short-covering most likely. I suspect its downtrend will resume over the coming weeks. On the positive side, REITs, Banks, Semis, Computer, Gold, Energy, Oil Tanker and Coal shares are especially strong, rising 2.50%+. Market leading stocks are also outperforming again. (XLF) and (IYR) have traded well throughout the day. The market continues to take recent bad news in stride, which is a large positive. I would expect to see a broad-based move lower in credit default swaps from current levels for this equity rally to gain real traction. Nikkei futures indicate an +150 open in Japan and DAX futures indicate an +3 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less economic fear, diminishing financial sector pessimism, lower long-term rates and technical buying.