Stocks Higher into Final Hour on Less Economic Fear, Short-Covering, Diminishing Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is 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 5.34% and is high at 33.88. The ISE Sentiment Index is below average at 124.0 and the total put/call is slightly below average at .77. Finally, the NYSE Arms has been running high most of the day, hitting 2.26 at its intraday peak, and is currently 1.25. The Euro Financial Sector Credit Default Swap Index is rising 4.35% today to 150.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising 1.51% to 177.83 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1.54% to 97 basis points. The TED spread is now down 366 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 5.33% to 59.25 basis points. The Libor-OIS spread is falling .38% to 91 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 1.28%, which is down 136 basis points since July 7th. 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 .13%, which is unch. today. Financial, REIT and Homebuilding stocks are powering today’s afternoon rally. Cyclical shares are also outperforming. Recent broad market action is very healthy. Many stocks from many sectors are now breaking out technically. As well, the US Dollar Index looks poised to break above its 50-day moving average at 86.22 next week. The Citi US Economic Surprise Index is now up to +24.80, while its eurozone counterpart is at -63.90. The Smart Money Flow Index continues to trend higher and is now at an 8-month high. Most news continues to be interpreted in a positive light and far too many investors remain underexposed to equities, which bodes well for further US stock gains. Nikkei futures indicate an +128 open in Japan and DAX futures indicate an +11 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic fear, portfolio manager performance anxiety and less financial sector pessimism.