Friday, October 29, 2010

Stocks Higher into Final Hour on Tax Policy/Election Optimism, Earnings Strength, Short-Covering, Buyout Speculation

Broad Market Tone:

  • Advance/Decline Line: Higher
  • Sector Performance: Most Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 21.12 +1.15%
  • ISE Sentiment Index 157.0 +22.66%
  • Total Put/Call .87 unch.
  • NYSE Arms 1.30 +18.41%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.02 bps +.03%
  • European Financial Sector CDS Index 93.66 bps +.64%
  • Western Europe Sovereign Debt CDS Index 148.0 bps +1.95%
  • Emerging Market CDS Index 204.02 bps +.76%
  • 2-Year Swap Spread 16.0 +1 bp
  • TED Spread 18.0 +2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .11% -1 bp
  • Yield Curve 227.0 -2 bps
  • China Import Iron Ore Spot $149.10/Metric Tonne -.33%
  • Citi US Economic Surprise Index +1.70 +2.2 points
  • 10-Year TIPS Spread 2.16% unch.
Overseas Futures:
  • Nikkei Futures: Indicating -27 open in Japan
  • DAX Futures: Indicating +18 open in Germany
  • Higher: On gains in my Tech and Ag long positions
  • Disclosed Trades: None
  • Market Exposure: 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher, at session highs, despite recent equity gains, rising terrorism fears and eurozone sovereign debt worries. On the positive side, Road & Rail, Education, Gaming, Wireless, Computer Service, Disk Drives, Semi and Computer Hardware shares are especially strong, rising 1.0%+. Small-caps and cyclicals are outperforming. The Transportation Index continues to trade well and is poised to take out its 52-week high over the coming weeks. Lumber is rising +3.69%. The California Municipal CDS is falling -8.55% to 243 bps. On the negative side, Coal, Alternative Energy and Medical Equipment shares are under pressure, falling more than 1.0%. The Portugal sovereign cds is gaining +4.89% to 377.57 bps, the Greece sovereign cds is rising +7.34% to 817.10 bps, the China sovereign cds is gaining +7.18% to 63.47 bps and the US sovereign cds is gaining +5.82% to 40.34 bps. The broad market continues to consolidate recent gains on below average volume, which is healthy. Most negative news is still being ignored, while positives continue to be rewarded. So many investors are positioning for a "sell the news" reaction to next week's Fed meeting and US election that any expected weakness may be relatively mild and short-term in nature. I expect US stocks to trade modestly higher into the close from current levels on tax policy/election optimism, less economic fear, short-covering, buyout speculation, less financial sector pessimism and earnings optimism.

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