Stocks Rising into Final Hour on Diminishing Economic Fear, Short-Covering, Investment Manager Performance Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs and Financial longs. I covered all of my (IWM)/(QQQQ) hedges this morning, 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 below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 3.93% and is high at 23.23. The ISE Sentiment Index is slightly above average at 162.0 and the total put/call is around average at .79. Finally, the NYSE Arms has been running slightly above average most of the day, hitting 1.30 at its intraday peak, and is currently 1.05. The Euro Financial Sector Credit Default Swap Index is falling -1.66% today to 72.33 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 -1.16% to 102.37 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is down 1 basis point to 22 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 +10.58% to 37.25 basis points. The Libor-OIS spread is down 1 basis point to 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 7 basis points to 1.86%, which is down 81 basis points since July 7th. The 3-month T-Bill is yielding .06%, which is up 1 basis point today. Small-cap growth shares are substantially outperforming the broad market today. HMO, Hospital, Computer Service, Disk Drive and Semi shares are especially strong, jumping 2.25%+ today. The bears were unable to gain any traction this morning despite more hawkish Fed commentary and weakness in commodities. So far, technical action over the last couple of days indicates a healthy consolidation of recent gains before another push higher commences. Nikkei futures indicate an +50 open in Japan and DAX futures indicate an +9 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering, investment manager performance anxiety and less financial sector pessimism.