Portfolio Manager's Commentary on Investing and Trading in the U.S. Financial Markets
Monday, March 16, 2009
Stocks Weakening into Final Hour on Profit-Taking, More Shorting, Real Esate Sector Weakness
BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs, Medical longs and Biotech longs. I added (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative 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 mildly bearish. The VIX is rising 2.12% and is very high at 43.25. The ISE Sentiment Index is around average at 142.0 and the total put/call is below average at .79. Finally, the NYSE Arms has been running low most of the day, hitting .17 at its intraday trough, and is currently .76. The Euro Financial Sector Credit Default Swap Index is falling 11.58% today to 175.67 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 5.24% to 229.91 basis points. This index is still below its Dec. 5th record high of 285.99. The TED spread is falling 4.48% to 108 basis points. The TED spread is now down 355 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .36% to 68.75 basis points. The Libor-OIS spread is falling .04% to 108.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 7 basis points to 1.12%, which is down 152 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 .23%, which is up 4 basis points today. This morning’s rally was rather narrow in scope with many market-leading stocks actually lower. As well, several gauges of investor angst, such as the total put/call ratio, are still registering some short-term complacency. Given the recent monster gains in the (XLF) and this afternoon’s swift sell-off, I would expect to see some more profit-taking in financials near-term. As well, the (IYR) has failed to keep pace with the (XLF) over the last few days, which was likely a negative tell. Nikkei futures indicate an +130 open in Japan and DAX futures indicate a -20 open in Germany tomorrow. I expect US stocks to trade modestly lower into the close from current levels on more shorting and profit-taking.
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