Stocks Slightly Higher into Final Hour on Bargain-Hunting, Short-Covering and Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Biotech longs and Medical longs. I covered some of my (IWM)/(QQQQ) hedges, commodity shorts and (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is very heavy. Investor anxiety is very elevated again. Today’s overall market action is bullish. The VIX is rising 20.03% and is hitting a historically elevated 76.92. The ISE Sentiment Index is low at 101.0 and the total put/call is very high at 1.29. Finally, the NYSE Arms has been running low most of the day and is currently .58. The Euro Financial Sector Credit Default Swap Index is falling 2.85% today to 106.0 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 rising 3.9% to 198.86 basis points. The TED spread is rising 9.5% to 4.64 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 12 basis points to .93%, which is down 170 basis points in about three months and at the lowest level since January 1999. Today’s “key reversal” is very encouraging. I would expect to see some follow through next week. Depending on upcoming global policy actions, this morning may have been “THE” bottom for US stocks. Nikkei futures indicate a -130 open in Japan and DAX futures indicate an +100 open in Germany on Monday. I expect US stocks to trade higher into the close from current levels on short-covering, less financial sector pessimism, diminished forced selling, bargain-hunting and technical buying.