Portfolio Manager's Commentary on Investing and Trading in the U.S. Financial Markets
Friday, March 13, 2009
Stocks Slightly Higher into Final Hour on Healthy Consolidation of Recent Gains
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Biotech longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. Investor anxiety is about average. Today’s overall market action is bullish. The VIX is rising 3.4% and is very high at 42.31. The ISE Sentiment Index is slightly above average at 163.0 and the total put/call is below average at .70. Finally, the NYSE Arms has been running around average most of the day, hitting 2.17 at its intraday peak, and is currently .82. The Euro Financial Sector Credit Default Swap Index is falling .35% today to 192.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling .79% to 242.63 basis points. This index is still below its Dec. 5th record high of 285.99. The TED spread is falling .03% to 112 basis points. The TED spread is now down 351 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .74% to 68.50 basis points. The Libor-OIS spread is rising .48% to 107.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 5 basis points to 1.05%, which is down 159 basis points since July 7th. 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 .19%, which is down 1 basis point today. Considering the extent of recent gains, today’s modest move higher on average volume is very healthy. If we have seen a significant market low the averages should stay in an overbought state and tread water for a bit before another significant surge higher. Healthcare-related stocks are very strong again today on buyout speculation and less fundamental pessimism. This group should continue to outperform through year-end. The US sovereign debt credit default swap is dropping 9% today to 80.0, which is down 16% in five days. This is a large positive. I suspect that Fed Chairman Bernanke’s interview on 60 Minutes this Sunday may provide a modest upside catalyst for stocks on Monday. Nikkei futures indicate an +110 open in Japan and DAX futures indicate an +33 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, declining credit market angst, bargain-hunting, buyout optimism, better investor psychology, less extreme economic fear and diminishing financial sector pessimism.
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