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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs, Biotech longs and Medical 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 rising and volume is heavy. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling 3.9% and is high at 24.62. The ISE Sentiment Index is below average at 125.0 and the total put/call is around average at .85. Finally, the NYSE Arms has been running high most of the day, hitting 1.64 at its intraday peak, and is currently 1.35. The Euro Financial Sector Credit Default Swap Index is falling 4.15% today to 79.33 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 2.17% to 114.62 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 10.22% to 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is up .56% to 33.44 basis points. The Libor-OIS spread is falling 2.20% to 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.84%, which is down 83 basis points since July 7th. The 3-month T-Bill is yielding .14%, which is up 2 basis points today. Small-cap and cyclical shares are substantially outperforming today. Gaming, hospital, networking, disk drive and HMO shares are especially strong, rising 1.75%+. The Euro financial sector credit default swap index is down meaningfully again today, which is a big positive. Redbook weekly retail sales fell 2.4% this week versus a 4.3% decline the prior week. This is the best showing for this report since the week of June 2^nd and up from a 5.7% decline the week of July 28^th. Weekly retail sales are one of the best lead indicators for an uptick in real economic activity. It is noteworthy that despite US dollar weakness and equity strength, oil, gold and copper are all lower on the day. The S&P 500 has had trouble closing above the 1,035 level several times over the last few weeks. If it is able to close convincingly above this level over the next few days, which I expect, another surge higher is likely on short-covering, technical buying, momentum chasing and performance anxiety. Nikkei futures indicate an +128 open in Japan and DAX futures indicate a -12 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, less financial sector pessimism and investment manager performance anxiety.