BETWEEN THE HEDGES

Stocks Lower into Final Hour, Weighed Down by Commodity, Airline and Homebuilding Shares

Posted by Gary .....at 3:51 PM

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Computer longs, Biotech longs, Gaming longs and Commodity shorts. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is bearish as the advance/decline line is lower, sector performance is mostly negative and volume is heavy. Investor anxiety is very high again. Today’s overall market action is mildly bearish. The VIX hit a very high 29.3. The ISE Sentiment Index is a very low 67.0 and the total put/call hit a high 1.33 again today. Finally, the NYSE Arms hit a high 2.0. The 10-year swap spread is rising another 1.9 basis points today to 86.86 basis points over Treasuries. It is still at the highest level since July 2001. However, the TED spread is falling 13 basis points to 150 basis points, which is a positive. Overall, credit market angst is subsiding a bit today, which is a big positive. As well, internet, software, semi, networking, computer service, telecom, banks, I-banks, insurance, REIT and tobacco shares are all rising today despite headline losses in the major averages. Investor sentiment remains extraordinarily depressed. Besides short interest soaring to another record in February, the AAII % Bulls fell to 21.9% this week, while the AAII % Bears jumped to 51.6%. Nikkei futures indicate a -100 open in Japan and DAX futures indicate a -7 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering and subsiding credit market angst.

Today's Headlines

Posted by Gary .....at 2:57 PM

Bloomberg:
- Yields on agency mortgage-backed securities relative to US Treasuries narrowed for the first time in seven days, falling 7 basis points, potentially lowering home loan costs for the most creditworthy borrowers.
- The Federal Reserve said it will expand two short-term auctions this month to $100 billion, from $60 billion, to address “heightened liquidity pressures in term funding markets.”
- Highland Capital Management LP, whose largest hedge fund lost more than 15% this year as the value of credit investments slumped, is preparing to invest another $1 billion to buy debt at record-low prices.
- Saracen Energy Partners LP, the Houston-based hedge fund, lost as much as 22% of its value last month because of wrong-way bets on the price of US natural gas.

Wall Street Journal:
- With federal regulators prodding banks to raise more capital, Washington Mutual(WM) and other battered lenders have approached private-equity firms and sovereign-wealth funds about possible cash infusions.
- In papers filed with the court, Delphi's attorney said the company has "credible information" that at least one member of its investor group has been "trading and/or shorting" the company's public securities.

NY Times:
- NYC Charter School Promises to Pay Teachers $125,000.

CNBC:
- NY Governor Eliot Spitzer said bond insurer Ambac Financial(ABK) will be able to maintain its AAA credit rating for the “foreseeable future” after raising $1.5 billion in capital.

USA Today:
- Federal archivists at the Clinton Presidential Library are blocking the release of hundreds of pages of White House papers on pardons that the former president approved, including clemency for fugitive commodities trader Marc Rich.

IBD:
- The path to shares prosperity is not measured by income inequality, but rather by the life all citizens live relative to their alternatives. Over the last 55 years, the world has witnessed how societies that embrace individual wealth creation and accumulation provide living standards far greater than those promoting income equality.

San Francisco Chronicle:
- California Ruling Clamps Down on Homeschooling.

ECB:
- Trichet Says ECB ‘Closely Monitoring’ Market Turmoil.

globeandmail:
- CIBC will spend $102.4 million on an incentive plan to retain its 1,300 stockbrokers.

The Scotsman:
- Hillary Clinton has been branded a “monster” by one of Barack Obama’s top advisers, as the gloves come off in the race to win the Democrat nomination.