Stocks Slightly Higher into Final Hour on Short-Covering, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Medical longs and Commodity shorts. I covered some of my (IWM)/(QQQQ) hedges this morning and then added them back, thus leaving the Portfolio 50% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are rising and volume is about average. Investor anxiety is about average. Today’s overall market action is slightly bearish. The VIX is falling 1.3% and remains above average at 23.81. The ISE Sentiment Index is below average at 115.0 and the total put/call is slightly above average at .95. Finally, the NYSE Arms has been running below average most of the day and is currently .67. The reversal higher in oil, global growth concerns and higher long-term rates are pressuring stocks this afternoon. The Shanghai Composite is now down 52% from its high and down 44% just this year. On the positive side, the Euro Financial Sector Credit Default Swap Index is falling 4.7% today to 79.62 basis points. This is up from a low of 52.66 on May 5^th, but still down from 129.46 basis points on March 20^th. The TED spread is also falling 7.4% to .79 basis points. Despite the fact that the (LEH) equity remains under pressure, its credit default swap is 289.80, still down from the 450+ reached during mid-March. The AAII % Bulls fell 28.1% this week to 31.2%, while the AAII % Bears jumped 40.8% to 53.6%. If the reports about an impending (GOOG)/(YHOO) search deal are true, it would be a major positive for GOOG. Nikkei futures indicate an +162 open in Japan and DAX futures indicate a -46 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising commodity prices, global growth worries, rising long-term rates and more record shorting.