Stocks Mixed into Final Hour as Less Economic Fear, Short-Covering, Diminishing Credit Market Angst Offsets Swin Flu Worries, Bank Stock Weakness

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech 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 about average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling 1.91% and is very high at 37.65. The ISE Sentiment Index is about average at 149.0 and the total put/call is about average at .84. Finally, the NYSE Arms has been running very high most of the day, hitting 2.39 at its intraday peak, and is currently 1.42. The Euro Financial Sector Credit Default Swap Index is rising 3.14% today to 156.67 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 1.12% to 177.99 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 4.83% to 92 basis points. The TED spread is now down 371 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 5.46% to 56.25 basis points. The Libor-OIS spread is falling 2.75% to 84 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 4 basis points to 1.51%, which is down 113 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 .12%, which is up 3 basis points today. Weekly retails sales rose for the 3^rd consecutive week, gaining .6%. April weekly retail sales averaged a +1.2% gain versus a -1.25% loss in March. Small-caps are outperforming today. Given the weak close in Asia last night, Europe’s losses this morning, Bank sector weakness and swine flu fears, today’s mixed performance in the major averages is a big positive. Nikkei futures indicate an +212 open in Japan and DAX futures indicate an +30 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering and diminishing credit market angst.