Friday, May 21, 2010

Stocks Reversing Morning Losses on Heavy Volume on Short-Covering, Bargain-Hunting, Less Financial Sector Pessimism, Diminishing Economic Fear

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Rising
  • Volume: Heavy
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • VIX 39.31 -14.15%
  • ISE Sentiment Index 79.0 +14.49%
  • Total Put/Call 1.23 -17.45%
  • NYSE Arms .54 -86.66%
Credit Investor Angst:
  • North American Investment Grade CDS Index 123.49.0 bps +.40%
  • European Financial Sector CDS Index 145.18 bps -3.46%
  • Western Europe Sovereign Debt CDS Index 118.83 bps -.56%
  • Emerging Market CDS Index 303.67 bps -3.15%
  • 2-Year Swap Spread 43.0 +4 bps
  • TED Spread 35.0 +2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .15% -1 bp
  • Yield Curve 249.0 -3 bps
  • China Import Iron Ore Spot $151.90/Metric Tonne -1.75%
  • Citi US Economic Surprise Index +19.40 +.2 point
  • 10-Year TIPS Spread 1.96% +1 bp
Overseas Futures:
  • Nikkei Futures: Indicating +41 open in Japan
  • DAX Futures: Indicating +11 open in Germany
  • Higher: On gains in my Technology, Medical, Biotech and Retail long positions
  • Disclosed Trades: Covered all my (IWM), (QQQQ) hedges and some of my EEM short
  • Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 is reversing morning losses substantially on heavy volume. On the positive side, Bank, I-Bank, Steel, Oil Tanker, Coal, Airline, Road&Rail, REIT, Networking, Disk Drive and Oil Service stocks are especially strong, rising 2.5+%. Small-Caps and Cyclicals are outperforming today. The rise in the euro, profit-taking and equity strength are weighing on gold again. Oil is flat despite the equity rally and bounce in the euro. The Eurozone Investment Grade CDS Index is falling -5.0%, which is a large positive. The Shanghai Composite reversed morning losses and finished at session highs, rising +1.1%. (XLF) has traded well throughout the day. On the negative side, Utility, Software, Telecom, Medical and HMO shares are mildly lower today. The Japan sovereign cds is up another +4.4% to 94.5 bps. While a test of morning lows is likely over the coming weeks, the market's hugely oversold state and very high investor angst readings could lead to further stock gains in the short-term. I may put some hedges back on into the close, depending on the action in the final hour. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, short-covering, less financial sector pessimism and diminishing economic fear.

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