Tuesday, February 10, 2009

Stocks Falling into Final Hour on More Economic Fear Mongering, More Shorting, Proft-taking and Rising Credit Angst

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Medical longs, Financial longs, Internet longs and Biotech longs. I added (IWM/QQQQ) hedges, added to my (EEM) short, took profits in some trading longs and added to my commodity shorts today, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is falling and volume is above average. Investor anxiety is high. Today’s overall market action is very bearish. The VIX is rising 8.32% and is very high at 47.27. The ISE Sentiment Index is low at 106.0 and the total put/call is about average at .90. Finally, the NYSE Arms has been running extraordinarily high most of the day, hitting 6.53 at its intraday peak, and is currently 6.41. The Euro Financial Sector Credit Default Swap Index is rising 4.34% today to 112.33 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 rising 2.74% to 191.51 basis points. The TED spread is falling 4.37% to 92 basis points. The TED spread is now down 375 basis points in under four months. The 2-year swap spread is jumping 13.82% to 70.0 basis points. The Libor-OIS spread is falling 1.27% to 95 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 14 basis points to 1.24%, which is down 146 basis points in under seven months. 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 .31%, which is up 3 basis points today. The financial sector’s reaction to Geithner’s rescue plan is a large negative. The ISE Sentiment Index hit 240.0 this morning, the highest level since September of last year, which is a negative. As well, the total put/call remains relatively subdued at .90, which is also a negative. I suspect government bonds(TLT) have reached another bottom, inflation expectations have hit another peak and the US dollar(UUP) is beginning another surge higher. On the positive side, the NYSE Arms is extraordinarily high at 6.41. As well, weekly retail sales fell -1.7% this week, up from a -2.3% decline the prior week, which is the best level in 5 weeks. Nikkei futures indicate a -160 open in Japan and DAX futures indicate a -50 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, rising financial sector pessimism, increasing credit market angst and more economic fear-mongering.

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