Stocks Rising into Final Hour on Lower Long-Term Rates, Less Economic Fear, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical 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, most sectors are gaining and volume is about average. Investor anxiety is very high. Today’s overall market action is very bullish. The VIX is rising 1.38% and is very high at 26.54. The ISE Sentiment Index is low at 102.0 and the total put/call is above average at .95. Finally, the NYSE Arms has been running high most of the day, hitting 1.69 at its intraday peak, and is currently .84. The Euro Financial Sector Credit Default Swap Index is rising 2.54% today to 92.0 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 rising .19% to 123.53 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 3.63% to 26 basis points. The TED spread is now down 440 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling .57% to 43.63 basis points. The Libor-OIS spread is rising .32% to 24 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 1.78%, which is down 88 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is down 2 basis points today. The broad market continues to display resilience in the face of potential negative catalysts. The Shanghai Composite fell another 4.3% last night and briefly touched bear market territory. Given the extreme investor hype around China’s economy and its perceived role in the recent global rebound, it is very impressive that the Shanghai Composite has dropped 20% from its recent high, while the S&P 500 is just 1.8% lower from its recent high, reached a week ago. Since the week of 10/12/07, when global markets peaked, the S&P 500 is down 32.77% versus a 46.95% decline for the Shanghai Composite. I would expect to see Asian equities recoup some of their recent losses tonight. Nikkei futures indicate an +91 open in Japan and DAX futures indicate an +38 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 and investment manager performance anxiety.