Stock Reversing Higher into Final Hour on Short-Covering, Less Economic Fear, Diminishing Financial Sector Pessimism, Technical Buying

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Technology longs and Financial longs. I covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is slightly lower, sector performance is mostly positive and volume is about average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 1.24% and is high at 24.64. The ISE Sentiment Index is slightly below average at 136.0 and the total put/call is around average at 81. Finally, the NYSE Arms has been running low most of the day, hitting .37 at its intraday trough, and is currently .45. The Euro Financial Sector Credit Default Swap Index is rising 2.29% today to 83.46 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 .48% to 116.16 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.72% to 22 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is unch. at 35.19 basis points. The Libor-OIS spread is falling another 4.73% to 18 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 1 basis point to 1.73%, which is down 93 basis points since July 7th. The 3-month T-Bill is yielding .14%, which is down 1 basis point today. Defense, Computer, Disk Drive, Bank, Hospital, HMO, Insurance and REIT shares are substantially outperforming today, rising .75%+. As well, the MS Cyclical Index is rising 1.0% today. The US scrap steel benchmark rose another 2.1% today and is up 4.8% over the last five days. The Citi US economic surprise index is rising 6.9 points today to 66.0, which is near its recovery high of 70.0 on May 28th. Long-term rates are subdued despite recent supply and better economic reports. The AAII % Bulls fell to 34.0 this week, while the % Bears surged to 49.0, which is a major positive. As I said yesterday, given how much we have rallied and improving economic data, I am surprised at the lack of complacency in most of my sentiment gauges. I expect personal spending, released before the open tomorrow, to exceed estimates of .2%, which could further boost stocks in the morning. Nikkei futures indicate an +127 open in Japan and DAX futures indicate an +52 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, technical buying, less economic fear, diminishing financial sector pessimism and subdued long-term rates.