Friday, September 12, 2008

Stocks Slightly Lower into Final Hour on Surging Credit Angst, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Software longs and Medical longs. I added to my (AAPL) long today and added back to an existing commodity short today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is slightly bullish. The VIX is rising 5.74% and is high at 25.79. The ISE Sentiment Index is low at 104.0 and the total put/call is above-average at .99. Finally, the NYSE Arms has been running around average most of the day, after peaking at 1.71 this morning, and is currently .83. The Euro Financial Sector Credit Default Swap Index is +1.9% today to 95.17 basis points. This index is up from a low of 52.66 on May 5th, but down from 129.46 basis points on March 20th. The North American Investment Grade Credit Default Swap Index is +2.2% at 149.71 basis points. The TED spread is rising 10.14% to 1.33 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.95%, which is down 67 basis points in seven weeks and at the lowest level since August 2003. Oil continues to trade very poorly given the OPEC production cut, recent price declines, today’s US dollar weakness, that it is at the psychologically important $100/bbl. level, a larger-than-expected inventory decline, hurricane worries and recent Iranian shipping sanctions. Refinery Utilization is now at 78.3%, the lowest since the historic hurricanes in 2005 wreaked havoc with the Gulf energy infrastructure and slashed oil demand by refiners. The (XLF) has been very resilient again given recent news. The etf continues to hold its recent range of $19.50-$23.50, which is a broad market positive. The Bank Index(BKX) is actually .73% higher today. Many market leading stocks are significantly outperforming the broad market again today. The broad market, in general, is behaving very well given the spike in credit market angst and financial sector pessimism. There remains massive bull firepower available as the worst case economic scenario is likely factored into most stock prices at current levels. The US dollar will likely pull back a bit further before embarking upon another surge higher next month. The Citi eurozone economic surprise index is now -157.60, while the US economic surprise index is +46.0. Apple(AAPL) may have a bit more downside here, but it isn’t worth waiting on, in my opinion. I suspect those intermediate/long-term investors that are selling around currently levels will greatly regret it by year-end. Nikkei futures indicate an +90 open in Japan and DAX futures indicate an unch. open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

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