Stocks Higher into Final Hour on Less Economic Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is above average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is falling -.03% and is very high at 30.68. The ISE Sentiment Index is below average at 104.0 and the total put/call is high at 1.04. Finally, the NYSE Arms has been running above average most of the day, hitting 2.07 at its intraday peak, and is currently 1.11. The Euro Financial Sector Credit Default Swap Index is falling -.11% today to 68.83 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 -.98% to 105.90 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 24 basis points. The TED spread is now down 440 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +1.46% to 34.69 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 +2 basis points to 2.04%, which is down 61 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is unch. today. Cyclicals are outperforming today, rising +1.0%. However, given today’s positive economic data and last week’s swoon, today’s muted advance on poor breadth is a bit disappointing. A number of sectors are lower on the day, as well. Small-caps are underperforming again. CDS indices are not confirming today’s equity move higher. In my opinion, the recent stock pullback is mostly due to technical factors. While more mixed-to-negative action is likely in the near-term, I do not believe this is the end of the recent advance and I expect stocks to finish the year on a positive note. Nikkei futures indicate an +8 open in Japan and DAX futures indicate a -48 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and less economic pessimism.