Portfolio Manager's Commentary on Investing and Trading in the U.S. Financial Markets
Wednesday, February 11, 2009
Stocks Higher into Final Hour on Less Financial Sector Pessimism, Short-Covering, Lower Energy Prices
BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Education longs and Commodity shorts. I covered some of my (IWM/QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are gaining and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling 3.81% and is very high at 44.85. The ISE Sentiment Index is below average at 119.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running around average most of the day, hitting .97 at its intraday peak, and is currently .71. The Euro Financial Sector Credit Default Swap Index is rising .59% today to 111.67 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 .64% to 192.73 basis points. The TED spread is rising 2.27% to 93 basis points. The TED spread is now down 374 basis points in under four months. The 2-year swap spread is falling 1.17% to 63.25 basis points. The Libor-OIS spread is rising .72% to 96 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 12 basis points to 1.12%, which is down 158 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 .30%, which is down 1 basis point today. The bears are unable to gain any traction today and the financial sector is recouping some of yesterday’s steep losses. Last night, Senator Dodd said that adjusting mark-to-market accounting rules eventually 'may be' part of the Obama administration's plan to stabilize financial markets. I think this would help financials a great deal and would be a large broad market positive. The most heavily shorted sectors are up the most. Tech, Commodity and Transportation shares are lower on the day. While I am not long (RIMM), investor reaction to its lowered guidance appears overdone and is a broad market negative. Any market rally without tech participating is likely unsustainable. Nikkei futures indicate a -120 open in Japan and DAX futures indicate a -3 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 and less financial sector pessimism.
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