Stocks Building on Recent Gains into Final Hour on Earnings Optimism, Less Economic Pessimism, Short-Covering, Lower Long-Term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Defense longs, Biotech 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, almost every sector is rising and volume is about average. Investor anxiety is very high. Today’s overall market action is very bullish. The VIX is falling 4.29% and is high at 24.78. The ISE Sentiment Index is below average at 114.0 and the total put/call is slightly below average at .74. Finally, the NYSE Arms has been running very high most of the day, hitting 2.08 at its intraday peak, and is currently 1.44. The Euro Financial Sector Credit Default Swap Index is rising 1.49% today to 102.50 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 1.83% to 134.88 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.89% to 34 basis points. The TED spread is now down 432 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.18% to 44.38 basis points. The Libor-OIS spread is rising .71% to 32 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 3 basis points to 1.78%, which is down 86 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Economically sensitive and small-cap shares are outperforming again today. (XLF) is consolidating recent gains in an orderly fashion. The market is taking the (CIT) news very well. US stock bearishness remains relatively high, which is a large positive. Economic bellweather, (FDX), made negative comments yesterday afternoon, yet the stock is blasting up through its 200-day moving average on volume. (IBM) and (GOOG) are also trading well ahead of their earnings reports after the close. I will closely monitor the market’s reaction to these reports and tomorrow morning’s financial sector earnings releases. While the market is extended near-term, I suspect the high levels of bearishness and investment manager performance anxiety will keep any pullback relatively mild and short-lived in nature. Nikkei futures indicate an +160 open in Japan and DAX futures indicate an +43 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, short-covering, investment manager performance anxiety, earnings optimism and less economic pessimism.