Stocks Mostly Higher into Final Hour on Bargain-Hunting, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Software longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is positive today as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is high again. Today’s overall market action is bullish. The 3.4% gain in the semiconductor index(SOX), despite (INTC), is a big positive. As well, financials, retail and reits are trading substantially higher. While the VIX is only 1.6% higher, volatility in market leaders is very high today. Moreover, while we haven’t seen a “whoosh” lower in the broad market that might indicate a bottom, we did see a “whoosh” lower this morning in market leading stocks. Agriculture shares, which had previously been immune to recent selling, saw substantial drops. The total put/call hit a very high 1.45 and the ISE Sentiment Index hit a depressed 71.0 again today. The TED spread, a meaningful gauge of credit market angst, is dropping another 3 basis points today to 82 basis points. The TED spread is down 142 basis points in just over one month and is at its lowest level since August of last year. The fact that the credit markets are functioning much better is a large positive. I suspect we will see another substantial drop in mortgage rates this week. The average 30-year mortgage rate is currently 5.87%. A decline below 5.5% would greatly help the situation with upcoming mortgage resets. I expect that to occur over the next 6 weeks, which could provide a large positive catalyst for stocks. Refinancings soared 43.3% this week, according to the MBA Mortgage Applications report. I want to see how Asian stocks, which closed at their lows last night, react to our reversal today before further shifting market exposure. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain hunting, diminishing credit angst and lower energy prices.