Stocks Slightly Higher into Final Hour on Less Economic Fear, Short-Covering, Lower Long-Term Rates and More Earnings Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Technology longs and Financial longs. I added (AKS) long and took profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is higher, sector performance is mixed and volume is slightly below average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling 1.30% and is very high at 25.04. The ISE Sentiment Index is around average at 148.0 and the total put/call is about average at .81. Finally, the NYSE Arms has been running extraordinarily high most of the day, hitting 1.65 at its intraday peak, and is currently 1.02. The Euro Financial Sector Credit Default Swap Index is rising 6.57% today to 76.0 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 1.24% to 110.49 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1.22% to 30 basis points. The TED spread is now down 436 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 5.04% to 35.31 basis points. The Libor-OIS spread is falling 3.43% to 27 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 8 basis points to 1.81%, which is down 83 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. The MS Cyclical Index is jumping another 2.6% today. Homebuilding, Construction and Steel stocks are all surging 1.5%+. The NYSE Arms has been extraordinarily high for the second consecutive day, which is a positive as the bears remain unable to gain any meaningful traction. Despite more economic optimism and US dollar weakness, the 10-year yield is falling another 12 basis points today, which is a huge positive. The US sovereign credit default swap is falling 6.25% today to 30.0 basis points, which is the lowest since May 13^th. It is noteworthy that inflation expectations and long-term rates are falling today, despite a rise in commodity prices and US dollar weakness. Odds are increasing that US economic growth will surprise on the upside during 3Q. Nikkei futures indicate an +59 open in Japan and DAX futures indicate an +10 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, less economic fear, lower long-term rates and more earnings optimism.