Thursday, November 18, 2010

Stocks Substantially Higher into Final Hour on Less Economic Fear, Diminishing Ireland Debt Angst, Tax Policy Optimism, Bargain-Hunting

Broad Market Tone:

  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Every Sector Rising
  • Volume: About Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 18.91 -13.10%
  • ISE Sentiment Index 139.0 +25.23%
  • Total Put/Call .79 -12.22%
  • NYSE Arms .56 -58.63%
Credit Investor Angst:
  • North American Investment Grade CDS Index 90.18 bps -2.39%
  • European Financial Sector CDS Index 102.33 bps -.19%
  • Western Europe Sovereign Debt CDS Index 163.0 bps -.71%
  • Emerging Market CDS Index 218.48 bps -2.89%
  • 2-Year Swap Spread 18.0 unch.
  • TED Spread 15.0 unch.
Economic Gauges:
  • 3-Month T-Bill Yield .13% -1 bp
  • Yield Curve 240.0 +2 bps
  • China Import Iron Ore Spot $163.20/Metric Tonne unch.
  • Citi US Economic Surprise Index +29.90 +5.8 points
  • 10-Year TIPS Spread 2.11% +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating +122 open in Japan
  • DAX Futures: Indicating +4 open in Germany
  • Higher: On gains in my Medical, Retail, Technology and Biotech long positions
  • Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges, covered some of my (EEM) short, added to my (GOOG) long
  • Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades meaningfully higher despite ongoing US municipal debt fears, China inflation concerns, tax policy uncertainty, US housing worries and euro sovereign debt angst. On the positive side, Airline, Gaming, Construction, Disk Drive, Computer, Internet, Oil Service, Energy and Coal shares are especially strong, rising more than 2.25%. Cyclical and small-cap shares are outperforming. Copper is jumping +2.8%. The Ireland sovereign cds is dropping -4.03% to 503.02 bps and the Hungary sovereign cds is falling -5.29% to 299.75 bps. Moreover, the California Municipal CDS is falling -2.79% to 287.93 bps and the Illinois Municipal CDS is falling -2.67% to 292.0 bps. The AAII % Bulls fell to 40.0 this week, while the % Bears jumped to 32.5, which is also a big positive. On the negative side, Education, HMO, Hospital and Utility shares are underperforming, rising less than .5%. (IYR) has also underperformed throughout the day. The Greece sovereign cds is jumping +3.78% to 992.90 bps. The UK, Portugal and Spain sovereign cds are flat after recent sharp gains, which is also a big negative. Given euro currency strength and global equity optimism today, I would have expected a much larger drop in sovereign cds. If the euro debt situation begins to temporarily calm again and these cds come in, stocks should test their 52-week highs. I expect US stocks to trade mixed-to-lower into the close from current levels on tax hike worries, more shorting, eurozone debt concerns, US housing worries and China inflation fears.

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