Thursday, February 11, 2010

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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Biotech longs and Retail longs. I added to my (CREE) long and to a commodity short today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is around average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling -4.92% and is above average at 24.17. The ISE Sentiment Index is low at 98.0 and the total put/call is slightly above average at .86. Finally, the NYSE Arms has been running above average most of the day, hitting 1.48 at its intraday peak, and is currently .91. The Euro Financial Sector Credit Default Swap Index is rising +2.51% to 90.73 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 -1.60% to 100.76 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is up +1 basis point to 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th, 2008. The 2-year swap spread is rising +1.09% to 28.94 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -2 basis points to 2.26%, which is down -39 basis points since July 7th, 2008. The 3-month T-Bill is yielding .09%, which is down -1 basis point today. Utility, Networking, Bank, I-Bank and Education shares are relatively weak. (XLF) has lagged throughout the day after yesterday’s outperformance. Despite speculation over an imminent Greece bailout, the euro financial sector cds is rising and the Portugal sovereign cds is surging 4.7% to 195.90 bps, which is also a negative. On the positive side, Coal, Alt Energy, Oil Tanker, Oil Service, Ag, Gold, Steel, Semi, Homebuilding, Gaming and Road & Rail shares are especially strong, rising 2.0%+. US scrap steel prices have jumped +16.03% over the last five days. The euro continues to trade poorly despite its oversold state, an equity rally, a large short base and Greece bailout hopes. I suspect Iran’s failure to carry through on its recent threats for today, the large drop in jobless claims and extreme investor pessimism are more responsible for today’s rally than Greece bailout news. Today’s broad market action is the healthiest its been in awhile, notwithstanding the lack of participation by the financials, which bodes well for further near-term upside after a brief consolidation. Nikkei futures indicate an +122 open in Japan and DAX futures indicate an +50 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism, bargain-hunting, diminishing political fear and technical buying.

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