Wednesday, September 23, 2009

Stocks Reversing Lower into Final Hour on Profit-Taking, More Shorting, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Defense longs. I added (IWM)/(QQQQ) hedges, added (VXX) long and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is about even, most sectors are declining and volume is heavy. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is falling .87% and is high at 22.87. The ISE Sentiment Index is below average at 127.0 and the total put/call is around average at .83. Finally, the NYSE Arms has been running above average most of the day, hitting 1.61 at its intraday peak, and is currently 1.17. The market’s reaction to today’s mostly positive news is a bit disappointing. Real estate-related stocks are especially weak with (IYR) trading “heavy” throughout the day and falling 2.8% to session lows. As well, the US dollar looks higher near-term, which will likely further pressure commodity-related stocks. On the positive side, tech shares are substantially outperforming, the Euro Financial Sector CDS Index is plunging another 10% and many market leaders are rising today. I expect to see some more weakness in Asia materialize tonight, which could further pressure US shares tomorrow morning. Nikkei futures indicate an +50 open in Japan and DAX futures indicate an +8 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, financial sector pessimism and more shorting.

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