Stocks Higher into Final Hour on Bargain-Hunting, Diminishing Credit Market Angst and Lower Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Computer longs, Biotech longs and Retail longs. I added (IWM)/(QQQQ) hedges this morning and then covered them today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially higher, most sectors are rising and volume is above average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling 4.5% and is historically elevated at 66.83. The ISE Sentiment Index is low at 99.0 and the total put/call is below average at .79. Finally, the NYSE Arms has been running high most of the day, hitting 1.41 at its intraday peak, and is currently 1.21. The Euro Financial Sector Credit Default Swap Index is falling 6.2% today to 96.66 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling 2.57% to 203.71 basis points. The TED spread is falling 1.57% to 280 basis points. The TED spread is now down 184 basis points in about three weeks. The 2-year swap spread is up 3.52% to 117.75 basis points. The Libor-OIS spread is falling 2.93% to 257 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 5 basis points to .90%, which is down 173 basis points in about four months and at the lowest level since February 1999. Many market leading stocks are posting another day of massive gains, substantially outperforming the broad market. The action in (GS)/(HIG) is a negative and likely holding back the broad market from even more substantial gains. Emerging markets are very overbought short-term and could come under pressure tonight which could lead to some weakness here tomorrow morning. However, I suspect we will see another round of meaningful short-covering before day’s end. I still expect the DJIA to test 10,000 over the coming days. Nikkei futures indicate a -70 open in Japan and DAX futures indicate an +20 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism, lower credit market angst, diminishing forced selling, lower energy prices and bargain-hunting.