Stocks Mostly Higher into Final Hour on Lower Energy Prices, Short-Covering and Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs and Healthcare longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is mildly bullish as the advance/decline line is slightly higher, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling 4.35% and is elevated at 45.29. The ISE Sentiment Index is below average at 124.0 and the total put/call is below average at .79. Finally, the NYSE Arms has been running high most of the day, hitting 1.54 at its intraday peak, and is currently 1.39. The Euro Financial Sector Credit Default Swap Index is rising 3.9% today to 124.0 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 .33% to 218.33 basis points. The TED spread is falling 4.38% to 151 basis points. The TED spread is now down 315 basis points in just over two months. The 2-year swap spread is down 2.07% to 82.75 basis points. The Libor-OIS spread is dropping 2.64% to 129 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 8 basis points to .10%, which is down 251 basis points in about 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 yielding .00%, which is up 5 basis points today. 1-month US Dollar-based Libor is dropping another 4 basis points to .47% today. It has declined 413 basis points since October 10^th. The recent plunge in gauges of credit angst remain a big positive. Despite potential negative catalysts today, the bears were unable to gain meaningful traction in the (XLF). Tech, REITs and HMOs were especially strong today. Small-cap stocks continue to outperform significantly. Investor reaction to the RIMM/ORCL earnings reports bodes well for the Naz into year-end. If it were not for option expiration today, I suspect the broad market would put in a better showing. I think stocks can build on this week’s gains next week. Nikkei futures indicate an +32 open in Japan and DAX futures indicate a -13 open in Germany on Mon. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, diminishing credit market angst and short-covering.