Wednesday, September 10, 2008

Stocks Higher into Final Hour on Short-Covering, Lower Commodity Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Software longs, Medical longs and Computer longs. I covered all my (IWM)/(QQQQ) hedges this morning and then added them back, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is above average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling 6.5% and is above-average at 23.82. The ISE Sentiment Index is very low at 93.0 and the total put/call is high at 1.09. Finally, the NYSE Arms has been running below average most of the day and is currently .58. The Euro Financial Sector Credit Default Swap Index is unch. today at 92.50 basis points. This index is up from a low of 52.66 on May 5th, but down from 129.46 basis points on March 20th. The North American Investment Grade Credit Default Swap Index is unch. at 142.88 basis points. The TED spread is unch. at 1.17 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 1.95%, which is down 67 basis points in just over seven weeks and at the lowest level since August 2003. The average 30-year fixed rate mortgage has now dropped 36 basis points in three days to 5.79%. It has plunged 72 basis points since July 23rd, which is a large positive. Mortgage Applications surged 9.5% this week, the most in 13 weeks. Oil continues to trade very poorly given the OPEC production cut, a larger-than-expected inventory decline, hurricane worries and Iranian shipping sanctions. Refinery Utilization is now at 78.3%, the lowest since the historic hurricanes in 2005 wreaked havoc with the Gulf energy infrastructure. The US Dollar continues to trade very well. The Citi eurozone economic surprise index is now -162.50 versus +63.20 for the US economic surprise index. Nikkei futures indicate a -21 open in Japan and DAX futures indicate a +38 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as lower commodity prices and short-covering offset global growth worries.

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