Stocks Higher into Final Hour on Less Financial Sector Pessimism, Short-Covering, Diminishing Economic Fear

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Technology longs, Financial longs and Biotech 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 gaining and volume is slightly below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 5.45% and is high at 24.83. The ISE Sentiment Index is below average at 134.0 and the total put/call is below average at .70. Finally, the NYSE Arms has been running low most of the day, hitting .35 at its intraday peak, and is currently .48. The Euro Financial Sector Credit Default Swap Index is falling 6.8% today to 88.0 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 2.73% to 120.16 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 5.70% to 25 basis points. The TED spread is now down 441 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling .45% to 41.38 basis points. The Libor-OIS spread is falling 4.01% to 22 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 7 basis points to 1.85%, which is down 81 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is unch. today. Banks(+2.62%) and REITs(+3.59%) are especially strong today. It is a huge positive to see the large decline in the Euro Financial Sector CDS Index confirm the move. Goldman Sachs placed one of my longs,(GOOG), on its conviction buy list today, upping their 6-month target on the shares to $560. I think this price target is very reasonable and that the stock has much more long-term upside than commonly perceived. I suspect many professionals are sitting out the latest move higher in the broad market, which could further add fuel to the rally fire on any unexpected positive catalyst. A convincing move up through 1,020 on the S&P 500 would likely trigger another wave of short-covering and performance chasing. Nikkei futures indicate an +63 open in Japan and DAX futures indicate an +10 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, lower long-term rates, short-covering, diminishing financial sector pessimism and investment manager performance anxiety.