Stocks Higher into Final Hour on Less Economic Pessimism, Earnings Optimism, Lower Long-Term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Defense longs, Medical longs, Biotech longs, Technology 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, almost every sector is rising and volume is below average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling .21% and is high at 24.29. The ISE Sentiment Index is below average at 125.0 and the total put/call is below average at .69. Finally, the NYSE Arms has been running very high most of the day, hitting 1.83 at its intraday peak, and is currently .96. The Euro Financial Sector Credit Default Swap Index is falling 5.79% today to 92.67 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 falling 2.68% to 126.53 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .53% 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 rising 1.75% to 47.19 basis points. The Libor-OIS spread is falling .88% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.87%, which is down 77 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. The Euro Financial Sector Credit Default Swap Index is breaking down to the lowest level since early January, which is a large positive. As well, the GE Capital CDS is breaking down 7% today to the lowest since mid-January. Economically-sensitive stocks are jumping again today, with the MS Cyclical Index surging 2.79%. Banks, which had been one of today’s worst performing groups, are now heading into positive territory. One negative I saw today was the low total put/call reading of .46 this morning. One of my longs, (ISRG), is gaining 5.5% today ahead of its earnings release this Wed. The short interest ratio on (ISRG) is currently at a record high of 9.03. I plan to add to my long position on any meaningful earnings related weakness in the shares from current levels. Nikkei futures indicate an +270 open in Japan and DAX futures indicate an +13 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, less economic pessimism, lower long-term rates and earnings optimism.