Wednesday, June 20, 2007

Stocks Lower into Final Hour on Rise in Rates

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Computer longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is about average. The major averages and breadth have weakened over the last couple of hours as the 10-year yield hit a session high of 5.14%. As I said yesterday, bonds have become very overbought short term, however, I expect the yield to move back down to 4.75% during the third quarter. The underlying tone of the market remains pretty good despite today’s sell-off. Many stocks are substantially outperforming the major averages once again. As well, the airline, retail, I-banking, wireless, semi, Internet and alternative energy sectors are substantially outperforming. The Investors Intelligence survey is showing more bullishness this week. However, as you can see in these charts, this survey has not been a good contrary indicator since the bottom in 2003. There are many others that have a much better track record in gauging “herd” sentiment. One of my favorites, the AAII, comes out tomorrow. My intraday gauge of investor angst is at an above-average level. I expect US stocks to trade modestly higher into the close from current levels on stabilizing long-term rates, buyout speculation, short-covering and bargain-hunting.

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