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

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs, Biotech longs and Financial longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are rising and volume is slightly below average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling 1.67% and is high at 24.72. The ISE Sentiment Index is below average at 103.0 and the total put/call is slightly below average at .80. Finally, the NYSE Arms has been running slightly above average most of the day, hitting 1.24 at its intraday peak, and is currently 1.07. The Euro Financial Sector Credit Default Swap Index is plunging another 2.82% today to 80.66 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 1.65% to 114.25 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.93% to 23 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 6.39% to 40.56 basis points. The Libor-OIS spread is falling 2.96% to 19 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 9 basis points to 1.74%, which is down 92 basis points since July 7th. The 3-month T-Bill is yielding .15%, which is unch. today. I-Bank, Insurance, Homebuilding, Retail and Airlines shares are substantially outperforming today, rising 1.5%+. Long-term rates are slightly lower despite recent supply and today’s better economic reports. On the negative side, the market is, for the second day in a row, experiencing an afternoon reversal lower from morning highs and trades a bit “tired” despite some positive news flow. Chinese equities came under meaningful pressure again last night, which is likely helping to pressure commodity stocks here today. The S&P 500 1,035 level is providing some resistance. I plan to maintain my hedges in the short-term, barring a convincing breach of this level. Nikkei futures indicate an +143 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, China Bubble worries, falling commodities and profit-taking.