Stocks Mixed into Final Hour as Rising Oil Offsets Less Economic Pessimism

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Computer longs, Semi longs and Alternative Energy longs offset losses in my Internet longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is about even, sector performance is mixed and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is mildly bullish. The VIX is rising .05% and is still above-average at 22.04. The ISE Sentiment Index is low at 110.0 and the total put/call is about average at .87. Finally, the NYSE Arms has been running slightly below average most of the day and is currently .79. The Euro Financial Sector Credit Default Swap Index is rising 2.65% today to 79.42 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is -2.15% today to 130.17 basis points. The TED spread is rising 1.12% to 1.10. Today’s action is more constructive taking into consideration yesterday’s advance and today’s $4.60 jump in oil. The fact that the financials etf(XLF), which has a negative -.95 correlation with oil, is maintaining recent gains is especially positive. Merrill(MER) is trading up another 2.4%. Half the financial newsletter writers are bearish, the most since 1995, which also bodes well for an extension of recent gains. The last time stock pessimism was this high was in January 1995, a month before the Dow Jones Industrial Average rose to 4,000 for the first time and began an advance of more than 100 percent over the next five years. The Citi eurozone economic surprise index is now -155.70 versus +29.40 in the US. I still think the US dollar has further upside over the short and intermediate-term. Nikkei futures indicate an +77 open in Japan and DAX futures indicate an +25 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing financial sector pessimism and less economic pessimism.