Stocks Higher into Final Hour on Tech Sector Optimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs and Technology longs. I covered by (IWM)/(QQQQ) hedges 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 gaining and volume is below average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling 2.2% and is very high at 39.51. The ISE Sentiment Index is slightly below average at 131.0 and the total put/call is slightly below average at .80. Finally, the NYSE Arms has been running above average most of the day, hitting 1.53 at its intraday peak, and is currently 1.26. The Euro Financial Sector Credit Default Swap Index is rising .48% today to 159.17 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 falling 1.73% to 191.97 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising .27% to 96 basis points. The TED spread is now down 367 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.18% to 57.25 basis points. The Libor-OIS spread is falling .81% to 93 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 3 basis points to 1.33%, which is down 131 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 .18%, which is down 1 basis point today. Considering the weakness in banks today, the broad market is holding recent gains very well. Many market-leading stocks are substantially outperforming the major averages. Small-caps and “growth” shares are also showing relative strength. Financials still appear to be consolidating recent gains. Any renewed strength in these shares should ignite another surge in the broad market. Nikkei futures indicate an +120 open in Japan and DAX futures indicate a -2.0 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, tech sector optimism and bargain-hunting.