Stocks Mostly Higher into Final Hour on Short-Covering, Less Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Alternative Energy longs, Software longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is above-average. Investor anxiety is above-average despite large gains in the averages. Today’s overall market action is very bullish considering yesterday’s outsized gains. The VIX is rising to 26.5 and remains high. The ISE Sentiment Index is a below-average 117.0 and the total put/call is an above-average 1.07 today. Finally, the NYSE Arms is an above average 1.03. The 10-year swap spread is falling to 74.75 basis points over Treasuries, down from a high of 92.75 four days ago. Today’s mild market gains are even more impressive considering the 13 basis point drop in the 10-year yield, 1.2% drop in the dollar index and rise in oil. Redbook weekly retail sales rose 1.0% this week, the most since the first week of January and up from a .5% gain the prior week. While still at sluggish levels, this is an improvement during a time when consumer spending is supposedly weakening significantly. Also of note, while other emerging markets were strong overnight, the Shanghai Composite fell another 2.3% and is now down 33.5% from its record high hit last year. Nikkei futures indicate a -20 open in Japan and DAX futures indicate a -13 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as short-covering and less credit market angst offset record energy prices, ongoing economic pessimism and profit-taking.