Stocks Mostly Lower into Final Hour on Jump in Commodities, Global Growth Worries, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Computer longs, Medical longs and Software longs offset losses in my Commodity shorts, Retail longs and Gaming longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is falling .57% and is still above-average at 21.04. The ISE Sentiment Index is very low at 93.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running above average most of the day and is currently .96. The Euro Financial Sector Credit Default Swap Index is rising 3.18% today to 81.17 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 rising 4.3% today to 135.50 basis points. The TED spread is rising 1.09% to .96. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 2.15%, which is the lowest since October 8, 2003 and down 48 basis points in less than six weeks. Given the 2.1% decline in the (XLF) and rise in commodities, the Nasdaq is trading very well again. I think the Naz will lead another broad market surge higher over the coming weeks as financials stabilize. Small-cap shares, specifically small-cap growth, are especially strong again today. The Russell 2000 is only 1.4% lower for the year and has rallied 17.0% since its low on March 10^th. I suspect small-caps will continue to outperform over the intermediate-term. Today’s rise in oil looks like short-covering to me. Gasoline supplies are falling because refiners are operating at record low levels for this time of the year due to poor demand for gas. The US dollar continues to trade very well and is likely just consolidating recent gains before another surge higher. Nikkei futures indicate a -8 open in Japan and DAX futures indicate an +65 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.