Stocks Slightly Higher into Final Hour on Less Economic Pessimism, Buyout Speculation, Short-Covering

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs and Medical longs. I covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is about even, sector performance is mostly positive and volume is about average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling -1.75% and is very high at 29.30. The ISE Sentiment Index is about average at 155.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running above average most of the day, hitting 1.53 at its intraday peak, and is currently .87. The Euro Financial Sector Credit Default Swap Index is rising +.09% 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 rising +2.06% to 108.09 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 23 basis points. The TED spread is now down 441 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +7.69% to 36.75 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 +1 basis point to 2.05%, which is down 60 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is unch. today. Cyclicals are outperforming substantially today, rising +1.32%. The Transports are surging 4.81% on the (BNI) news. Road & Rail, Gaming, Gold, Oil Service and Coal shares are especially strong, rising 1.75%+. Given the weakness overseas last night/this morning and relative weakness in (XLF) this morning, today’s broad market rebound from morning lows is more impressive. As well, despite weakness in the Semis today on a downgrade, the MS Tech Index is near session highs, rising .1%. A number of key stocks seem to be finding support around their 50-day moving-averages. I have heard several predictions of a 10%+ unemployment rate, which is released on Friday. I will be surprised if it comes in above estimates of 9.9%. I wouldn’t be surprised to see it come in slightly better than estimates. I sense the bears are probably getting a bit impatient with their inability to gain meaningful downside traction over the last couple of days. Nikkei futures indicate a -17 open in Japan and DAX futures indicate an +23 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, buyout speculation and less economic pessimism.