Portfolio Manager's Commentary on Investing and Trading in the U.S. Financial Markets
Wednesday, December 17, 2008
Stocks Lower into Final Hour on Profit-taking and More Shorting
BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Retail longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly bullish as the advance/decline line is about even, most sectors are rising and volume is about average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling 5.3% and is elevated at 49.60. The ISE Sentiment Index is slightly above average at 164.0 and the total put/call is slightly below average at .84. Finally, the NYSE Arms has been running high most of the day, hitting 1.45 at its intraday peak, and is currently 1.11. The Euro Financial Sector Credit Default Swap Index is falling 4.68% today to 133.96 basis points. This index is up from a low of 52.66 on May 5th, but down from 157.81 on Sept. 16th. The North American Investment Grade Credit Default Swap Index is falling 8.2% to 232.33 basis points. The TED spread is plunging 13.74% to 157 basis points. The TED spread is now down 309 basis points in just over two months. The 2-year swap spread is down 2.39% to 81.75 basis points. The Libor-OIS spread is plunging 14.5% to 137 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 19 basis points to .34%, which is down 227 basis points in about five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .01%, which is down 2 basis points today. 1-month US Dollar-based Libor is plunging another 30 basis points to .58% today. It has declined 402 basis points since October 10th. The recent plunge in gauges of credit angst is a huge positive. As well, the financials are displaying more action indicative of a meaningful bottom on the reversal higher in (MS) shares despite a very poor earnings report. Considering the move lower in the US dollar, recent record economic stimuli, a record OPEC supply cut and the recent rise in gold, oil trades very heavy. This could have some to do with President-elect Obama’s recent cabinet picks. He named Tom Vilsack Agriculture Secretary today. Here is a summary of Vilsack’s energy plan when he was running for President. With the S&P 500 hovering right above its 50-day moving-average I suspect some large funds are taking profits and initiating new shorts here. I still expect another meanginful stock surge higher from current levels before year-end. Nikkei futures indicate an +253 open in Japan and DAX futures indicate an +54 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, lower energy prices, less financial sector pessimism and diminishing credit market angst.
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