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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs and Financial 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 about average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 1.34% and is high at 24.39. The ISE Sentiment Index is around average at 144.0 and the total put/call is slightly below average at .68. Finally, the NYSE Arms has been running around average most of the day, hitting 1.23 at its intraday peak, and is currently 1.21. The Euro Financial Sector Credit Default Swap Index is rising +1.54% today to 73.66 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 falling 1.37% to 103.57 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 23 basis points. The TED spread is now down 442 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is +.37% to 33.81 basis points. The Libor-OIS spread is unch. at 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 4 basis points to 1.79%, which is down 88 basis points since July 7th. The 3-month T-Bill is yielding .05%, which is unch. today. Cyclical and small-cap shares are substantially outperforming the broad market today. Coal, Oil Tanker, Oil Service, Steel, Paper, Hospital and Homebuilding shares are especially strong, jumping 3%+ today. The AAII % Bulls fell to 35.0 this week, while the % Bears rose to 41.0, which is a big positive. At this point, the modest rise in the 10-year yield should not be perceived as a negative. On the negative side, (XLF) is trading at session lows and is unch. on the day despite some positive catalysts. As well, breadth in market leading stocks is only mediocre. After the surge over the last four days, stocks are due for a pause before another move higher commences. Nikkei futures indicate an +80 open in Japan and DAX futures indicate an unch. open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, more shorting, higher long-term rates, rising energy prices and healthcare reform worries.