Friday, February 19, 2010

Stocks Reversing Higher into Final Hour on Diminishing Sovereign Debt Angst, Short-Covering, Less Economic Fear, Technical Buying

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs, Financial longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is about even, most sectors are rising and volume is about average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling -4.41% and is around average at 19.72. The ISE Sentiment Index is below average at 101.0 and the total put/call is around average at .83. Finally, the NYSE Arms has been running around average most of the day, hitting 2.10 at its intraday peak, and is currently 1.12. The Euro Financial Sector Credit Default Swap Index is falling -3.15% to 86.62 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 -2.73% to 92.34 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is unch. at 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 falling -.59% to 28.70 basis points. The Libor-OIS spread is down -2 basis points to 8 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -5 bps to 2.28%, which is down -38 basis points since July 7th, 2008. The 3-month T-Bill is yielding .09%, which is unch. today. Emerging market shares are relatively weak today. As well, Education, Alt Energy, HMO and Computer shares are down -1.0%+. Market leaders are mixed. The Euro is bouncing today on record short bets on the currency and its technically oversold state. The Citi Eurozone economic surprise index has fallen to -16.90 from +91.0 in July of last year. The US economic surprise index is now +37.60, up from -24.0 in November. On the positive side, Road & Rail, Gaming, Insurance, Bank, Networking, Steel, Oil Service and Utility shares are especially strong, rising 1.25%+. (XLF) has traded well throughout the day and is at session highs. The 10-year CMBS/AAA spread plunged -10.2% this week, which is a large positive. The Western Europe Sovereign CDS Index is dropping another -4.2%, however the Greece sov CDS is slightly higher. I still suspect next week’s trading will provide a better indication on the sustainability of the rally as Shanghai reopens and the Greece debt situation gains more clarity. Nikkei futures indicate an +187 open in Japan and DAX futures indicate a -13 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, lower long-term rates, diminishing sovereign debt angst and technical buying.

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