Tuesday, May 27, 2008

Stocks Higher into Final Hour on Falling Energy Prices, Diminishing Credit Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Computer longs, Internet longs and Commodity shorts. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, sector performance is mostly positive and volume is below average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is rising .9% and remains above average at 19.71. The ISE Sentiment Index is about average at 158.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running above average most of the day and is currently 1.08. Market leading “growth” stocks are substantially outperforming the broad market again today. I suspect we will finally start seeing significant p/e multiple expansion in true growth stocks over the intermediate-term as investors come to grips with slower global growth. The TED spread is falling another 4 basis points today to .76, which is down from 2.05 in March of this year and the lowest since right before the credit crisis began to intensify in August of last year. The Citigroup US Economic Surprise Index is rising to -13.9 today, up from -100.0 in March. As well, the EU Index and Japanese Index are now below the US at -21.0 and -23.0, respectively. I continue to believe the commodity bubble has been the driving force behind the current “US negativity bubble” and that a bursting of the commodity bubble would be a much greater positive for the broad US stock market than commonly perceived. I also think that the recent parabolic rise in oil has been pressuring the US dollar. The dollar should see further strength on a continuation of recent oil weakness. While overall, insiders continue to exhibit bullish behavior, commodity-related stock insider selling picked up noticeably last week, according to Bloomberg. The Energy sector saw the largest amount of insider selling at $307,667,211 worth. The Industrial sector was second last week in insider selling at $144,329,741. XOM, SLB, DE, MON, MUR, FCX, CAM, APA, NBL, OXY, ESV, CVX and COP all saw meaningful insider selling last week. The Financial sector saw the greatest amount of insider buying last week at $265,026,347 worth. SOV, HD, CPB, ERTS, MVL, GBE, LAB, JEF, NEU, GLG, FBC, LOGI and MBI all saw notable insider buying. Nikkei futures indicate a +87 open in Japan and DAX futures indicate a +52 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, less economic pessimism and diminishing credit market angst.

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