Stocks Higher into Final Hour on Diminishing Credit Market Angst, Short-Covering, Less Earnings Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Computer longs, Internet 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 below average. Investor anxiety is slightly above average. Today’s overall market action is bullish. The VIX is falling .7%, but remains above average at 19.4. The ISE Sentiment Index is below average at 125.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running about average most of the day and is currently 1.0. Oil’s inability to rally today despite a weaker dollar and weekend production declines in the UK and Nigeria related to strikes is noteworthy. I said last week that I believed the bubble in fertilizer stocks would likely burst over the coming months. While it is still too early to tell if that is occurring now, the group trades poorly. The Philippine Stock Exchange Index fell another 1.4% last night to the lowest level since November 2006. The index is now down 29.7% from it high hit during October of last year. I continue to believe developed markets, in general, will substantially outperform emerging market indices over the next five years. According to Intrade.com, the odds of a US recession beginning this year have declined to 46.3% from 79.0% last month. This is the first time since early January that the odds of recession have fallen below 50.0%. The G-7 Currency Volatility Index(VXY) is falling another 3% today to 10.66, which is the lowest since February 28. Finally, the European Financial Sector Credit Default Swap Index is dropping another 6.7% today to a new low of 60.8 basis points, which is also a big positive. The (XLF) is near session highs, rising .6%. Nikkei futures indicate an +131 open in Japan and DAX futures indicate an +47 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less earnings pessimism and diminishing credit market angst.