Monday, December 14, 2009

Stocks Higher into Final Hour on Technical Buying, Buyout Speculation, Declining Emerging Mkt Debt Worries, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Technology longs, Defense 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, almost every sector is rising and volume is below average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling -4.40% and is high at 20.64. The ISE Sentiment Index is around average at 137.0 and the total put/call is slightly above average at .89. Finally, the NYSE Arms has been running high most of the day, hitting 2.16 at its intraday peak, and is currently 1.30. The Euro Financial Sector Credit Default Swap Index is falling -3.46% to 69.15 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 declining -2.62% to 91.98 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is unch. at 23 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 -4.24% to 33.88 basis points. The Libor-OIS spread is down -1 basis point to 9 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +5 basis points to 2.23%, which is down -42 basis points since July 7th. The 3-month T-Bill is yielding .02%, which is unch. today. Cyclicals and small-caps are outperforming. Market leaders are also trading very well today. Education, Oil Tanker, Computer, Disk Drive, Hospital, Gaming, Construction, Steel and Alt Energy shares are especially strong, rising 1.5%+ today. Today’s overall action has the traditional holiday feel with an underlying positive tone, that had been missing for several weeks. The North Amer. Inv. Grd. CDS Index is testing its Sept lows, which is a large positive. Other cds indices are also posting meaningful declines today. The only real negative I see in today’s action is the underperformance in (XLF). I continue to believe the odds of an upside S&P 500 breakout, from its recent tight trading range, are increasing. The Transports(+1.62% today) are already breaking out. Nikkei futures indicate an +10 open in Japan and DAX futures indicate an +4 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short covering, stable energy prices, technical buying, buyout speculation, diminishing emerging market debt angst, less economic fear, diminishing financial sector pessimism and seasonal strength.

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