Stocks Higher into Final Hour on Lower Energy Prices, Stable Long-Term Rates

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Defense longs. I added (IWM/QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is below average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling 1.56% and is high at 25.94. The ISE Sentiment Index is below average at 125.0 and the total put/call is slightly below average at .78. Finally, the NYSE Arms has been running above average most of the day, hitting 1.34 at its intraday peak, and is currently 1.13. The Euro Financial Sector Credit Default Swap Index is falling 1.51% today to 104.50 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 falling 2.2% to 129.54 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.12% to 42 basis points. The TED spread is now down 422 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 9.46% to 43.38 basis points. The Libor-OIS spread is falling 4.46% to 36 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points to 1.74%, which is down 90 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. The Banks feel a bit “heavy” today and a number of market-leading stocks are lower despite gains in the major averages. Despite a weaker US dollar, larger-than-expected US inventory decline, Iran concerns and a better-than-expected PMI report from China, oil has reversed lower again. On the positive side, small-caps are outperforming substantially and the US sovereign debt credit default swap is falling another 12.5% to 35.0 basis points, which is the lowest since May 13^th. Transportation shares are also relatively strong as they try and penetrate the 200-day moving average. Nikkei futures indicate an +135 open in Japan and DAX futures indicate a -13 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, increasing economic worries and financial sector pessimism.