Stocks Slightly Higher into Final Hour on Short-Covering in Beaten Up Sectors

BOTTOM LINE: The Portfolio is slightly lower into the final hour as gains in my Commodity shorts, Biotech longs and Retail longs are more than offset by losses in my Internet longs, Computer longs and Semi longs. I added (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 75% net long. The overall tone of the market is slightly positive today as the advance/decline line is mildly higher, sector performance is mostly positive and volume is above average. Investor anxiety is above average. Today’s overall market action is slightly bullish. Yesterday, I cautioned recent short interest data indicated that the many bears had recently increased their short positions in the most beaten up and most heavily shorted stocks right near their lows and that recent action in the market should make them very nervous. Today, many of those stocks are soaring. Homebuilders, financials and retailers are all posting meaningful gains. While these sectors have likely bottomed for the intermediate-term, they will not remain market leaders for long, in my opinion. I continue to favor true growth stocks for the longer-term as growth, interest rates and inflation remain below long-term average levels. Fed fund futures now imply a 40% chance for a 50 basis point rate cut and a 60% chance of a 25 basis point rate cut at the upcoming meeting. The average 30-year mortgage rate fell again this week to 6.1%, down from 6.74% in June, which is a big positive. The 10-year swap spread and G-7 currency volatility index are falling meaningfully again today, which are also positives. The US dollar continues to trade as if at the very least an intermediate-term bottom is in place. This, combined will decelerating global demand, should also continue to pressure most commodities over the intermediate-term. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking.