Stocks Higher into Final Hour on Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Alternative Energy longs, Software longs, Retail longs and Computer longs. I covered all my (IWM/QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is very light. Investor anxiety is about average. Today’s overall market action is bullish. The VIX is falling .3.9% and is still above-average at 19.71. The ISE Sentiment Index is below average at 126.0 and the total put/call is about average at .86. Finally, the NYSE Arms has been running about average most of the day and is currently .90. The Euro Financial Sector Credit Default Swap Index is rising 2.6% today to 93.83 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 +.69% to 145.36 basis points. The TED spread is rising 2.83% to 1.14 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 2.19%, which is still down about 44 basis points in about six weeks. The Citi eurozone economic surprise index is now -170.80 versus a reading of +51.90 for the US economic surprise index. The US dollar index is down .21% today on hawkish ECB comments and profit-taking. I will be very surprised if the ECB doesn’t lower rates over the coming months, despite this rhetoric. Heavily-shorted (FNM), (FRE) and (LEH) are surging again today, which is helping push the (XLF) 1.0% higher. Nikkei futures indicate an +100 open in Japan and DAX futures indicate an +27 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as short-covering offsets higher energy prices and rising credit market angst.