Wednesday, October 20, 2010

Stocks Surging into Final Hour on Less Financial Sector Pessimism, Tax Policy/Election Optimism, QE2 Expectations, Short-Covering

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 19.81 -3.97%
  • ISE Sentiment Index 132.0 +48.31%
  • Total Put/Call 1.05 +15.38%
  • NYSE Arms 1.31 -31.59%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.93 bps +.69%
  • European Financial Sector CDS Index 97.08 bps -2.77%
  • Western Europe Sovereign Debt CDS Index 138.25 bps +.36%
  • Emerging Market CDS Index 210.69 bps -.71%
  • 2-Year Swap Spread 16.0 -2bps
  • TED Spread 15.0 -1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% unch.
  • Yield Curve 213.0 +1 bp
  • China Import Iron Ore Spot $151.0/Metric Tonne -.79%
  • Citi US Economic Surprise Index -4.80 +.1 point
  • 10-Year TIPS Spread 2.06% -2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +134 open in Japan
  • DAX Futures: Indicating +17 open in Germany
  • Higher: On gains in my Tech, Ag, Retail and Biotech long positions
  • Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs despite US bank sector and China hard-landing concerns. On the positive side, Airline, REIT, Coal, Gold, Oil Service, Road & Rail, HMO, Networking, Gaming, Wireless, and Energy shares are especially strong, rising 2.0%+. Cyclicals are outperforming. (IYR) has traded well throughout the day. (XLF) is at session highs and is now slightly outperforming the broard market. The Transports looked poised to make another assault on their May highs. Copper is rising +.96%, the S&P GSCI Ag Spot Index is gaining +2.96% and Lumber is up +.72%. The decline in the euro financial sector cds index is also a large positive. On the negative side, Bank, Oil Tanker and Homebuilding shares are underperforming. The 10-Year Yield is unch. at 2.47%, despite today's equity strength. Gold is rising +1.05%. The Greece sovereign cds is rising +2.08% to 688.12 bps and the Ireland sovereign cds is rising +1.38% to 400.04 bps. The bears were unable to gain traction from yesterday's equity slide. (WFC) and (BAC), which have been a huge focus for the bears, are trading at session highs with (BAC) recouping morning losses and (WFC) posting a substantial gain. The major averages still look poised to test their highs for the year before the election. I expect US stocks to trade mixed-to-higher into the close from current levels on less financial sector pessimism, tax policy/election optimism, short-covering, QE2 expectations, investment manager performance angst, buyout speculation and earnings optimism.

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