Stocks Higher into Final Hour on Less Economic Fear, Short-Covering, Technical Buying, Seasonal Strength

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs, Medical longs and Biotech longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are rising and volume is light. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling -.44% and is high at 20.38. The ISE Sentiment Index is above average at 198.0 and the total put/call is slightly above average at .86. Finally, the NYSE Arms has been running around average most of the day, hitting 1.01 at its intraday peak, and is currently .90. The Euro Financial Sector Credit Default Swap Index is falling -3.0% to 71.50 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 -.64% to 102.12 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling -1 basis point to 22 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 rising +5.6% to 29.38 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 unch. at 2.15%, which is down -50 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is up +1 basis point today. Many market leading stocks are substantially outperforming the broad market. Cyclical shares are also outperforming, with the MS Cyclical Index jumping +1.44%. Gaming, Steel, Gold, Coal and Ag shares are especially strong, rising 1.75%+. MBA weekly mortgage applications fell -4.47% this week due to a -9.5% decline in refis, however purchase apps surged +9.58%. Moreover, Business Loans jumped +3.4% in the latest report from the St. Louis Federal Reserve, the largest percentage gain in many years, which is also a big positive. Given today’s positive economic reports, I am surprised US stocks aren’t rising more. However, this could be due to thinly populated trading desks and I suspect stocks will mount a better showing next week. With short interest rising over the last few weeks and many bear funds down significantly for the year, I expect another spike in short-covering on any meaningful break above current levels. Nikkei futures indicate an +1 open in Japan and DAX futures indicate an +1 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminishing healthcare reform worries, lower long-term rates, less economic fear, technical buying, investment manager performance anxiety and seasonal strength.