Stocks Higher into Final Hour on Lower Energy Prices, Less Financial Sector Pessimism and Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Biotech longs, Computer longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 1.27% and is very elevated at 62.22. The ISE Sentiment Index is below average at 137.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running high most of the day, hitting 1.50 at its intraday peak, and is currently .82. The Euro Financial Sector Credit Default Swap Index is rising 10.72% today to 134.85 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 up .99% to 263.08 basis points. The TED spread is rising 1.47% to 219 basis points. The TED spread is now down 245 basis points in about seven weeks. The 2-year swap spread is up 1.86% to 109.75 basis points. The Libor-OIS spread is rising 1.54% to 186 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 12 basis points to .52%, which is down 210 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is now yielding .01%, which is down 4 basis points today. Considering today’s news, stock gains are more impressive. I am seeing a number of stocks that had very bad news today that have reversed substantially higher from morning lows on strong volume. Market leading stocks are substantially outperforming the major averages. I wouldn’t be surprised if the bears overreached again on the afternoon pullback and may have to cover some shorts into the close. The huge decline in mortgage rates and commodity prices are massive positives that investors are mostly ignoring, in my opinion. I suspect an awful jobs report on Friday is already priced into the market and we could see further gains on the news. Nikkei futures indicate an +111 open in Japan and DAX futures indicate a +10 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less financial sector pessimism, short-covering, bargain-hunting, lower energy prices and seasonal strength.