Monday, September 14, 2009

Stocks Reversing Higher into Final Hour on Short-Covering, Technical Buying, Buyout Speculation, Less Economic Fear

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs, Biotech 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 .50% and is high at 24.03. The ISE Sentiment Index is around average at 140.0 and the total put/call is around average at .80. Finally, the NYSE Arms has been running high most of the day, hitting 1.51 at its intraday peak, and is currently 1.13. The Euro Financial Sector Credit Default Swap Index is rising .28% today to 75.0 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 rising 2.23% to 110.43 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising .65% 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 7.26% to 33.25 basis points. The Libor-OIS spread is rising 6.44% to 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 1.78%, which is down 89 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is unch. today. Considering the declines overseas last night and this morning related mostly to US/China trade war worries, today’s broad market action is even more positive. The herd, which expects an imminent meaningful stock pullback, is likely getting a bit impatient. Cyclicals shares are outperforming again despite these concerns. Airline, Gaming, REIT, Insurance, Hospital, I-Banking, Paper and Utility shares are especially strong, rising 1.5%+. (IYR) has been grinding higher throughout the day, which is always a big positive, and is moving to session highs(+2.42%). Moreover, market leaders have been substantially outperforming throughout the day. I expect to see overseas markets recoup losses tonight, which could further boost US shares in the morning. Nikkei futures indicate an +160 open in Japan and DAX futures indicate an +14 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on diminishing economic fear, short-covering, technical buying, buyout speculation and investment manager performance anxiety.

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