Tuesday, September 15, 2009

Stocks Higher into Final Hour on Less Economic Fear, Short-Covering, Technical Buying, Declining Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 1.93% and is high at 23.40. The ISE Sentiment Index is around average at 146.0 and the total put/call is slightly below average at .74. Finally, the NYSE Arms has been running very high most of the day, hitting 1.69 at its intraday peak, and is currently 1.56. The Euro Financial Sector Credit Default Swap Index is falling 1.79% today to 74.33 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 3.37% to 106.71 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising 4.55% to 17 basis points. The TED spread is now down 446 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 5.88% to 34.94 basis points. The Libor-OIS spread is dropping 8.63% to 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 6 basis points to 1.84%, which is down 83 basis points since July 7th. The 3-month T-Bill is yielding .12%, which is down 1 basis point today. The MS Cyclical Index is outperforming substantially again today, rising 1.7%. Airline, Gaming, Homebuilding, Bank, Steel and Coal shares are especially strong, rising 2.25%+. Retail shares are underperforming today on BBY’s report and a “sell the news” reaction to today’s better-than-expected August Retail Sales report. These shares have had a big run and I suspect this is just another pause before another surge higher commences. Redbook weekly retail sales fell -2.1% this week versus a -2.4% decline the prior week and a -5.7% decline during the week of July 21. This meaningful improvement should continue through year-end on pent-up demand and better sentiment. Airlines, arguably the most hated group in the market, are on a tear. The XAL has risen 21% in 9 days, which is even more impressive considering oil at $71/bbl. and rising H1N1 fears. (XLF) is reversing higher again today and (IYR) continues to trade very well, breaking higher from its recent range. I expect (XLF) to follow over the coming days. I expect to see overseas shares rise again tonight/tomorrow morning. Nikkei futures indicate an +113 open in Japan and DAX futures indicate an +12 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on diminishing economic fear, short-covering, less financial sector pessimism, technical buying and investment manager performance anxiety.

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