Wednesday, December 23, 2009

Stocks Mostly Higher into Final Hour on Less Economic Fear, Short-Covering, Seasonal Strength, Technical Buying

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Technology longs, Medical 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, almost every sector is rising and volume is light. Investor anxiety is high. Today’s overall market action is bullish. The VIX is rising +.72% and is above average at 19.68. The ISE Sentiment Index is above average at 174.0 and the total put/call is around average at .82. Finally, the NYSE Arms has been running very high most of the day, hitting 1.81 at its intraday peak, and is currently 1.65. The Euro Financial Sector Credit Default Swap Index is falling -1.19% to 66.33 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 falling -.56% to 83.76 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising +2 basis points to 20 basis points. The TED spread is now down 445 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling -.58% to 36.49 basis points. The Libor-OIS spread is unch. at 9 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up -3 basis points to 2.34%, which is down -31 basis points since July 7th. The 3-month T-Bill is yielding .05%, which is down -2 basis points today. Small-cap shares are strongly outperforming again today with the Russell 2000 rising +1.2%. I continue to see a number of leading small-cap stocks bust out of their trading ranges to new 52-week highs. Moreover, some key large-caps, such as (GOOG), are now breaking out. Airline, Gaming, REIT, Construction, Disk Drive, Internet, Steel, Gold, Oil Service and Coal shares are especially strong, rising 1.5%+ today. (XLF) continues to base and (IYR) remains an outperformer as it hits a new 52-week high today. Credit default swap indices are mostly lower today. Many sovereign debt cds are falling 2-3% today, which is a large positive. On the negative side, semis and banks are underperforming today. Despite weaker-than-expected economic data today, the bears were unable to gain any downside traction. The NYSE Arms has been very high on light index volume, which is a large positive, especially considering the Nasdaq is hitting a new 52-week high again today. I still expect the S&P 500 to break convincingly higher out of its recent trading range over the coming days. Nikkei futures indicate an +132 open in Japan and DAX futures indicate an +17 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, buyout speculation, less economic fear, technical buying and seasonal strength.

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