Stocks Mostly Higher into Final Hour on Fall in Energy Prices, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Alternative Energy longs, Gaming longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, sector performance is mostly positive and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is mildly bullish. The VIX is rising 3.02% and is still above-average at 21.85. The ISE Sentiment Index is low at 114.0 and the total put/call is about average at .92. Finally, the NYSE Arms has been running above average most of the day and is currently 1.13. The Euro Financial Sector Credit Default Swap Index is rising 3.2% today to 81.75 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 +.17% today to 130.53 basis points. The TED spread is rising .08% to 1.12. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 3 basis points today to 2.29%, which is the lowest since May 2nd and down 34 basis points in less than 3 weeks. Today’s broad market action is more constructive taking into consideration the morning weakness in financials and recent broad market gains. Growth stocks are especially strong. Small/Mid-cap Biotech/Medical stocks are sharply higher on the (IMCL) takeout news. I expect these stocks to continue to substantially outperform over the intermediate-term. There has been ample opportunity for the many bears to gain downside traction the last few days and they have been unable to capitalize thus far. It is interesting to note that one of my alternative energy longs, heavily-shorted (AMSC), has moved higher 11 out of the last 12 days, despite the decline in oil. The company reports next week. The AAII % Bulls rose to 40.0 this week and the % Bears fell to 41.18. Nikkei futures indicate a -31 open in Japan and DAX futures indicate an +46 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less financial sector pessimism, lower energy prices and bargain-hunting.