Stocks Higher into Final Hour on Less Economic Fear, Short-Covering, Technical Buying, Diminishing Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs, Financial longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is mildly higher, most sectors are rising and volume is below average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling -2.78% and is high at 21.70. The ISE Sentiment Index is around average at 146.0 and the total put/call is slightly above average at .88. Finally, the NYSE Arms has been running around average most of the day, hitting .99 at its intraday peak, and is currently .98. The Euro Financial Sector Credit Default Swap Index is falling -1.3% to 71.49 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 declining -1.69% to 94.45 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 23 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +4.04% to 35.38 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +5 basis points to 2.18%, which is down -47 basis points since July 7th. The 3-month T-Bill is yielding .02%, which is unch. today. Cyclicals are outperforming today. Defense, Airline, Education, Restaurant, Retail, Hospital, Bank, Disk Drive, Paper, Oil Tanker and Utility shares are especially strong, rising 1.0%+. The hated Airline Index(XAL) is jumping +6.2% today to another 52-week high. These shares will likely continue to outperform over the intermediate-term. Falling oil and lower temperatures are spurring consumer discretionary shares again today. The US dollar continues to trade very well, which is forcing traders to finally focus on oil’s very poor fundamentals. On the negative side, tech shares are notably weak today. The odds of an upside market breakout from its recent tight trading range are increasing, in my opinion. Nikkei futures indicate an +50 open in Japan and DAX futures indicate an +5 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short covering, lower energy prices, technical buying, diminishing emerging market debt angst, less economic fear, diminishing financial sector pessimism and seasonal strength.