Stocks Slightly Higher into Final Hour on Earnings Optimism, Short-Covering, Technical Buying, Lower Long-Term Rates

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is mildly lower, sector performance is mixed and volume is slightly below average. Investor anxiety is very high. Today’s overall market action is neutral. The VIX is falling -1.83% and is high at 22.47. The ISE Sentiment Index is below average at 128.0 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 1.29 at its intraday peak, and is currently .77. The Euro Financial Sector Credit Default Swap Index is falling -4.20% to 64.25 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 +3.82% to 100.0 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 falling -2.63% to 30.06 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 unch. today. Gaming, Bank, Wireless, Software, Steel and Coal shares are outperforming today, rising +.5%+. The decline in the Euro Financial Sector CDS Index is a large positive. Considering the incorrect belief my many that US stocks can only go higher with a weaker US dollar and recent strong equity gains, today’s broad market action is more impressive. Weekly retail sales continue to show improvement, which is also a big positive. The S&P GSCI Ag Spot Index has risen for 7 consecutive days and hedge funds are accumulating shares in the fertilizer stocks once again. (POT) is jumping almost 6% after a report that Soros has boosted his stake to 2.95M shares from 1.98M. I still expect US stocks to build on recent gains by week’s end. Nikkei futures indicate an +36 open in Japan and DAX futures indicate an +20 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, earnings optimism, technical buying and falling long-term rates.