Wednesday, December 30, 2009

Stocks Slightly Lower into Final Hour on Profit-Taking, Terrorism Worries

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is very light. Investor anxiety is very high. Today’s overall market action is mildly bearish. The VIX is rising +1.0% and is above average at 20.21. The ISE Sentiment Index is below average at 119.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running very high most of the day, hitting 3.07 at its intraday peak, and is currently 1.38. The Euro Financial Sector Credit Default Swap Index is falling -4.94% to 61.91 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 rising +1.64% to 83.83 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is rising +5 basis points 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 -1.78% to 28.65 basis points. The Libor-OIS spread is unch. at 8 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.40%, which is down -25 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is up -5 basis points today. Homebuilding, Semi, Computer and Steel stocks are outperforming today, rising .5%+. Gauges of investor angst are high again today given just mild market weakness, which is a positive. I suspect terrorism jitters are holding stocks back a bit ahead of tomorrow night’s festivities. (GS), which has been a drag on financials for a couple of months, is beginning to turn higher again. As well, the euro financial sector cds index hit a new 52-week low today, which is a large positive. On the negative side, small-caps are relatively weak and the market mostly ignored today’s positive economic report. Nikkei futures indicate an +114 open in Japan and DAX futures indicate an +2 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, technical buying, tech sector optimism, lower long-term rates and seasonal strength.

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