Wednesday, September 16, 2009

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

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 substantially higher, most sectors are rising and volume is heavy. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is rising 1.84% and is high at 23.85. The ISE Sentiment Index is above average at 192.0 and the total put/call is below average at .65. Finally, the NYSE Arms has been running below average most of the day, hitting .48 at its intraday trough, and is currently .89. The Euro Financial Sector Credit Default Swap Index is falling 5.68% today to 70.33 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 plunging 6.29% to 100.0 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising 3 basis points 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 falling 4.08% to 33.81 basis points. The Libor-OIS spread is unch. at 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 4 basis points to 1.88%, which is down 79 basis points since July 7th. The 3-month T-Bill is yielding .09%, which is down 3 basis points today. Small-cap shares are outperforming today, with the Russell 2000 gaining 1.6%. Market leading stocks are very strong. Moreover, a number of sectors are posting sharp gains. REIT, Homebuilding, Insurance, Bank, Computer Service, Internet, Steel, Oil Service, Energy and Coal shares are all jumping 2%+ on the day. (IYR), which remains the main focus of the many bears, continues to blow higher, rising another 3.4% today. The Euro Financial Sector Credit Default Swap Index is falling to the lowest level since June 18th 2008, which is a large positive. As well, the US sovereign debt credit default swap index is falling 2 basis points to another new low of 20.0 basis points, which is also a big positive. I am seeing numerous technical breakouts in key US stocks. Considering the recent gains in equities, it is very constructive for the broad market to see oil and long-term rates’ muted increases. I expect to see overseas shares rise again tonight/tomorrow morning. Nikkei futures indicate an +115 open in Japan and DAX futures indicate an +18 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, declining healthcare reform worries, less financial sector pessimism, technical buying and investment manager performance anxiety.

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