Thursday, December 24, 2009

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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Financial longs and Retail 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 very light. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling -1.42% and is above average at 19.43. The ISE Sentiment Index is below average at 121.0 and the total put/call is below average at .72. Finally, the NYSE Arms has been running below average most of the day, hitting .41 at its intraday trough, and is currently .70. The Euro Financial Sector Credit Default Swap Index is falling -4.18% to 63.56 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 -1.65% to 82.37 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising +1 basis point to 21 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling -.18% to 36.21 basis points. The Libor-OIS spread is down -1 basis point to 8 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +2 basis points to 2.36%, which is down -29 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is down -1 basis point today. Market leaders are outperforming today. (AAPL) is joining (GOOG) in breaking out to a new 52-week high. Tech shares, in general, remain outperformers. A number of small/mid-cap semi companies are sharply higher. REIT, Bank, Disk Drive, Semi, Computer and Steel shares are especially strong, rising .75%+ today. (XLF) is trading better and (IYR) remains an outperformer as it hits another new 52-week high today. Credit default swap indices are mostly lower again, with the euro financial sector cds down meaningfully. Many sovereign debt cds are falling 2-3% today, which is a large positive. In my opinion, it still isn’t too late for longer-term investors to buy (AAPL) shares as substantial upside from current levels is very likely. The S&P 500 is finally breaking free from its 6-week trading range, which will most likely lead to more technical buying/short-covering into year-end. Nikkei futures indicate an +30 open in Japan and DAX futures indicate an +1 open in Germany on Friday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, buyout speculation, less economic fear, technical buying and seasonal strength.

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