Stocks Rising into Final Hour on Stable Long-Term Rates, Short-Covering, Less Economic Fear

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Defense longs, Technology longs and Medical 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 gaining and volume is about average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 5.01% and is high at 28.28. The ISE Sentiment Index is about average at 144.0 and the total put/call is about average at .83. Finally, the NYSE Arms has been running above average most of the day, hitting 1.66 at its intraday peak, and is currently 1.16. The Euro Financial Sector Credit Default Swap Index is falling .16% today to 103.70 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 2.82% to 123.06 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .52% to 48 basis points. The TED spread is now down 415 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is declining 8.34% to 46.0 basis points. The Libor-OIS spread is rising 3.06% to 42 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.0%, which is down 64 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. It is a big positive to see long-term rates stable after today’s Treasury auction. The (XLF) is .6% higher today, but has been basing for about 4 weeks. Any meaningful reversal lower in rates, after tomorrow’s more important Treasury auction, could help push the (XLF) up through its 200-day moving average, which should further boost the broad market. It is noteworthy that gold is only .2% higher on the day despite the sharp US dollar decline. Despite relative weakness in defense stocks today, one of my longs (ASEI), is breaking out on above-average volume. This stock would make an excellent acquisition for a larger firm and I still see substantial upside in the shares from current levels. Nikkei futures indicate an +64 open in Japan and DAX futures indicate an +17 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, technical buying, stable long-term rates and less economic fear.