BOTTOM LINE: I expect US stocks to finish the week modestly higher on seasonal strength, buyout speculation, diminishing financial sector pessimism, short-covering, technical buying, investment manager performance anxiety and less economic fear.My trading indicators are giving mostly bullish signals and the Portfolio is 75% net long heading into the week.
Indices S&P 500 1,105.98 +1.33%
DJIA 10,388.90 +.77%
NASDAQ 2,194.35 +2.62%
Russell 2000 602.79 +4.43%
Wilshire 5000 11,231.20 +1.66%
Russell 1000 Growth 492.10 +1.38%
Russell 1000 Value 562.67 +1.57%
Morgan Stanley Consumer 677.26 +.77%
Morgan Stanley Cyclical 802.01 +2.82%
Morgan Stanley Technology 556.83 +2.30%
Transports 4,101.76 +4.56%
Utilities 389.77 +3.74%
MSCI Emerging Markets 41.77 +4.0%
BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs, Financial longs and Defense longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is slightly above average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is falling -1.11% and is high at 22.21. The ISE Sentiment Index is below average at 106.0 and the total put/call is around average at .84. Finally, the NYSE Arms has been running above average most of the day, hitting 2.31 at its intraday peak, and is currently 1.07. The Euro Financial Sector Credit Default Swap Index is rising +3.11% to 68.32 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 falling -2.59% 97.48 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is unch. at 22 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +8.80% to 37.88 basis points. The Libor-OIS spread is down -1 basis point to 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is -2 basis points to 2.18%, which is down -47 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is unch. today.Small-caps are substantially outperforming, with the Russell 2000 rising +2.01%.As well, Airline, REIT, Bank, Disk Drive, Networking, I-Bank and Road & Rail shares are especially strong, rising 1.75%+.The bears have once again been unable to take meaningful advantage of another sharp reversal lower.The S&P 500 is holding above 1,100, the US dollar is sharply higher and (IYR)/(XLF) have traded well throughout the day.On the negative side, market leading stocks are substantially underperforming the broad market.As well, recent good news has failed to propel the major averages from their two-month trading ranges.Action over the last few days has likely left both bulls and bears feeling a bit more nervous.Next week’s trading will likely resolve this tug-o-war.I suspect an upside breakout is more likely, but my confidence level is a bit lower after today’s weakness in market leaders.Nikkei futures indicate an +190 open in Japan and DAX futures indicate a -20 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short covering, technical buying, less economic fear, diminishing financial sector pessimism, lower energy prices and seasonal strength.
