Stocks Higher into Final Hour on Falling Commodities, Diminishing Credit Angst, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Retail longs, Gaming longs and Emerging Market/Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, most sectors are rising and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is bullish. The VIX is falling 3.0% and is still above-average at 20.04. The ISE Sentiment Index is slightly below average at 137.0 and the total put/call is around average at .86. Finally, the NYSE Arms has been running around average most of the day and is currently .91. The Euro Financial Sector Credit Default Swap Index is -4.62% today to 79.83 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 falling 2.66% today to 129.59 basis points. The TED spread is falling 10.09% to 1.00. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 2 basis points to 2.16%, which is the lowest since October 8, 2003 and down 47 basis points in less than six weeks. Gold is breaking convincingly lower through its 200-day moving average and is down $206/oz. from its $1,033.90 high on March 17. The ECB appears to be in no hurry to cut rates and this is now being interpreted as a US dollar positive as they fall further behind the curve. For years, small-caps outperformed, despite dollar strength, while pundits called for their demise with the US economy’s dimming prospects. Historically, small-caps outperform during periods of dollar strength and they are now substantially outperforming again. The Russell 2000 is only 1.4% lower for the year versus a 10.3% decline for the S&P 500. I am finding many small/mid-cap growth stocks breaking out on volume over the last couple of weeks. The Shanghai Composite, the world’s worst-performing major stock index, fell another -5.2% last night and is now down -59.7% in less than a year. As well, Brazil’s Bovespa fell another 3.4% and is now down 26% in less than three months. Both are very oversold, but will likely move lower over the intermediate-term. A number of US stocks saw meaningfully insider buying again last week. SBGI, TEL, CBG, COV, COH, FCX, HBI, HOLX, HERO, MSM, INDM, PCX, MI, EQY, NEU, ID and INCY all saw a spike in corporate insider buying last week. Nikkei futures indicate a -10 open in Japan and DAX futures indicate an +21 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as diminishing credit market angst, less financial sector pessimism and falling commodity prices offsets global growth concerns and profit-taking.