Monday, September 21, 2009

Stocks Slightly Lower into Final Hour on Profit-Taking, More Shorting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs and Medical longs. I added (ESI) long and took profits in another long this morning, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is slightly lower, sector performance is mixed and volume is above average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling .75% and is high at 23.74. The ISE Sentiment Index is around average at 153.0 and the total put/call is around average at .82. Finally, the NYSE Arms has been running around average most of the day, hitting 1.43 at its intraday peak, and is currently .71. The Euro Financial Sector Credit Default Swap Index is rising 1.43% today to 72.50 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 8.33% to 95.49 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is down 1 basis point to 20 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.96% to 36.88 basis points. The Libor-OIS spread is up 1 basis point to 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.81%, which is down 86 basis points since July 7th. The 3-month T-Bill is yielding .09%, which is up 1 basis point today. Despite weakness in select sectors and overseas shares, the bears have been unable to gain any meaningful traction again today. The heavily-shorted education stocks are soaring on volume today. As well, airline shares continue to soar. Finally, healthcare-related shares are also strong today. One of my longs, (QSII), is breaking to a new ALL-TIME high today on above-average volume. I still think this stock has further room to run meaningfully higher over the intermediate and long-term. Nikkei futures indicate an +50 open in Japan and DAX futures indicate an +15 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering, lower energy prices, declining healthcare reform worries, technical buying and investment manager performance anxiety.

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