Stocks Slightly Higher into Final Hour on Less Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Defense longs, Financial longs and Biotech longs. I added (IWM)/(QQQQ) hedges this morning and then covered them, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is rising .07% and is very high at 29.63. The ISE Sentiment Index is about average at 147.0 and the total put/call is above average at .93. Finally, the NYSE Arms has been running above average most of the day, hitting 1.87 at its intraday peak, and is currently .71. The Euro Financial Sector Credit Default Swap Index is rising 2.52% today to 104.33 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 7.92% to 126.63 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 4.96% 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 rising 6.74% to 52.69 basis points. The Libor-OIS spread is rising 5.15% to 41 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 2 basis points to 2.0%, which is down 64 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Nikkei futures indicate an +25 open in Japan and DAX futures indicate an +56 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on higher long-term rates, rising credit market angst, more shorting and profit-taking.