Stocks Slightly Higher into Final Hour on Less Financial Sector Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs, Medical longs and Retail 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, most sectors are falling and volume is light. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising +1.82% and is very high at 25.20. The ISE Sentiment Index is below average at 109.0 and the total put/call is high at 1.06. Finally, the NYSE Arms has been running around average most of the day, hitting 1.12 at its intraday peak, and is currently 1.09. The Euro Financial Sector Credit Default Swap Index is falling -.45% to 79.31 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 +.96% to 106.25 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling -3 basis points to 21 basis points. The TED spread is now down 445 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +2.07% to 33.94 basis points. The Libor-OIS spread is down -1 basis point to 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.11%, which is down -54 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is up +2 basis points today. Many market leading stocks are outperforming the broad market. As well, Airline, Education, REIT, Utility, Insurance, I-Bank, Bank, Internet and Oil Service stocks are all higher on the day. (XLF)/(IYR) have traded well throughout the day. The bears have been unable to gain meaningful downside traction after the morning reversal lower and some negative news items, which is a positive. On the negative side, breadth has been somewhat weak as small-caps come under pressure again. Given the gains in Asia overnight and financial sector strength, today’s broad market morning sell-off was disappointing. Healthcare-related, Gaming, Retail, Telecom, Defense and Semi shares are all underperforming. The UK sovereign debt cds is rising another +.7% today after an +8.7% gain over the last five days, which is another negative. Nikkei futures indicate a -90 open in Japan and DAX futures indicate an +12 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain hunting, stable long-term rates, less financial sector fear and seasonal strength.