Stocks Rising into Final Hour on Short-Covering, Earnings Optimism, Lower Energy Prices, Falling Long-Term Rates

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Technology longs and Retail longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is slightly below average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling -2.72% and is high at 23.58. The ISE Sentiment Index is above average at 166.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running about average most of the day, hitting 1.63 at its intraday peak, and is currently .90. The Euro Financial Sector Credit Default Swap Index is rising +2.07% today to 69.47 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 rising .36% to 98.15 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 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 +1.54% to 33.0 basis points. The Libor-OIS spread is unch. at 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.16%, which is down -49 basis points since July 7th. The 3-month T-Bill is yielding .05%, which is down -1 basis point today. Cyclical and “growth” stocks are outperforming today. Alt Energy, Gold, Gaming, Airline, Restaurant, Construction, Hospital, Computer and Software shares are all rising 1%+. While recent choppy technical action is likely frustrating both bulls and bears, I view it as a broad market positive. Consolidating action near a technical resistance level(S&P 500 @ 1,100) is usually resolved to the upside from my experience. As well, the fact that the market rallied after today’s poor economic reports is a large positive. The decline in energy prices today, despite a weaker US dollar, is also a big positive as rising gas prices are one of the driving forces behind recent weak consumer sentiment data. On the negative side, Banks have traded “heavy” throughout the day. I still expect the S&P 500 to break convincingly higher through resistance at 1,100 over the near-term. Nikkei futures indicate an unch. open in Japan and DAX futures indicate a -11 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, earnings optimism, buyout speculation, lower energy prices and falling long-term rates.