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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs and Defense 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 heavy. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 2.97% and is very high at 30.10. The ISE Sentiment Index is below average at 128.0 and the total put/call is about average at .88. Finally, the NYSE Arms has been running about average most of the day, hitting .95 at its intraday peak, and is currently .91. The Euro Financial Sector Credit Default Swap Index is rising 2.75% today to 105.98 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 2.81% to 123.36 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 4.41% to 49 basis points. The TED spread is now down 414 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 11.31% to 47.31 basis points. The Libor-OIS spread is falling 3.87% to 41 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.93%, which is down 71 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is unch. today. Considering the 4% gains in many financial stocks, today’s broad market performance is a bit disappointing. Several sectors are lower on the day. This is likely the result of the surge in oil and long-term rates. If tomorrow’s jobs report is better-than-expected, long-term rates will likely surge again, which would be a negative for stocks. However, a below expectations report could spur economic worries. Thus, stock market bulls likely need an “at expectations” report and a calming of oil/interest rates to see another broad market rally tomorrow. As well, the AAII % Bulls jumped to 47.56% this week, while the % Bears fell to 36.60%, which is a mild negative. Nikkei futures indicate an +107 open in Japan and DAX futures indicate an +19 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, investment manager performance anxiety and diminishing financial sector pessimism.