Stocks Rising into Final Hour on Less Financial Sector Pessimism, Short-Covering, Lower Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Biotech longs, Computer longs and Medical longs. I covered my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, almost every sector is rising and volume is about average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 6.19% and is very elevated at 64.27. The ISE Sentiment Index is below average at 110.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running below average most of the day, hitting .39 at its intraday trough, and is currently .56. The Euro Financial Sector Credit Default Swap Index is rising 3.97% today to 122.33 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 down .07% to 260.50 basis points. The TED spread is falling .92% to 216 basis points. The TED spread is now down 248 basis points in about seven weeks. The 2-year swap spread is down 1.86% to 105.75 basis points. The Libor-OIS spread is rising 1.69% to 183 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 7 basis points to .40%, which is down 222 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 .05%, up 1 basis point today. The REIT index, the source of much angst of late, is surging 12%. As well, the (XLF) is at session highs, up 6.5%, despite weakness in (GS). Many market leading stocks are substantially outperforming the major indices. I am seeing a number of stocks with bad news out today reverse substantially higher off morning lows, which is always a good sign. It is also a large positive that another steep decline in energy prices isn’t resulting in growth worries. I would expect to see further strength in Asia tonight. Nikkei futures indicate an +230 open in Japan and DAX futures indicate a -9 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.