Stocks Higher into Final Hour on Short-Covering, Lower Commodity Prices and Bargain Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Internet longs, Medical longs, Gaming longs and Emerging Market shorts. I covered all my (IWM)/(QQQQ) hedges, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, most sectors are gaining and volume is above average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is rising .98% and is above-average at 24.76. The ISE Sentiment Index is very low at 99.0 and the total put/call is high at 1.06. The total put/call hit an extremely high reading of 1.40 into this morning’s weakness. Finally, the NYSE Arms has been running around average most of the day, after peaking at 2.0 this morning, and is currently .62. The Euro Financial Sector Credit Default Swap Index is +.27% today to 92.83 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 +1.41% at 149.45 basis points. The TED spread is rising 2.61% to 1.21 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.96%, which is down 66 basis points in just over seven weeks and at the lowest level since August 2003. Oil continues to trade very poorly given the OPEC production cut, a larger-than-expected inventory decline, hurricane worries and Iranian shipping sanctions. Refinery Utilization is now at 78.3%, the lowest since the historic hurricanes in 2005 wreaked havoc with the Gulf energy infrastructure and slashed oil demand by refiners. I suspect a good part of today’s rebound is related to traders finally beginning to price in the possibility of sub-$100 oil. The (XLF) has been very resilient given recent news. The etf continues to hold its recent range of $19.50-$23.50, which is a broad market positive. Many market leading stocks are posting meaningful gains today. These stocks are just too cheap in most cases. I am seeing evidence of size buyers finally stepping up to the plate. The Shanghai Composite, the world’s worst-performing major stock market, fell another 3.3% last night and is down 65.5% from its record set in October of last year. It continues to track closely with the bubble-bursting pattern of the Nasdaq in 2000-2001. The US Dollar continues to trade very well, but is getting extended again short-term. The AAII % Bulls dropped to 29.3% and the % Bears jumped to 54.9% this week, which is a big positive. Nikkei futures indicate an +73 open in Japan and DAX futures indicate a +18 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on lower commodity prices, short-covering and bargain-hunting.