Stocks Higher into Final Hour on Diminishing Economic Fear, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs and Medical longs. I haven’t 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 positive and volume is about average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is rising 1.90% and is very high at 25.74. The ISE Sentiment Index is below average at 110.0 and the total put/call is around average at .81. Finally, the NYSE Arms has been running very high most of the day, hitting 1.83 at its intraday peak, and is currently 1.68. The Euro Financial Sector Credit Default Swap Index is falling 2.86% today to 82.83 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 3.56% to 117.17 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .99% to 18 basis points. The TED spread is now down 448 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down 3.55% to 34.0 basis points. The Libor-OIS spread is falling 4.62% to 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 6 basis points to 1.83%, which is down 83 basis points since July 7th. The 3-month T-Bill is yielding .12%, which is unch. today. Cyclicals are outperforming again today, despite a very negative July consumer credit number, which is a big positive. Stocks had been weakening recently on positive news and now they are back to rising again, notwithstanding some negative news. REIT, Construction, Disk Drive, Steel, Oil Service, Coal and Alt Energy shares are especially strong, rising 3%+ for the day. It is also a big positive to see the N.A. IG CDS Index rolling over again. On the negative side, healthcare-related names are substantially underpforming on renewed healthcare reform worries. Besides healthcare, banking and road & rail shares are displaying relative weakness. Nikkei futures indicate an +22 open in Japan and DAX futures indicate an unch. open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering and investment manager performance anxiety.