Stocks Rising into Final Hour on Less Economic Fear, Technical Buying, Buyout Speculation, Lower Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Technology longs, Defense longs, Retail longs and Financial longs. I have not traded 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 about average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling -5.40% and is high at 20.50. The ISE Sentiment Index is around average at 145.0 and the total put/call is below average at .74. Finally, the NYSE Arms has been running slightly above average most of the day, hitting 2.17 at its intraday peak, and is currently 1.04. The Euro Financial Sector Credit Default Swap Index is falling -3.03% to 67.62 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 falling -3.82% to 85.98 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 21 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +.16% to 33.77 basis points. The Libor-OIS spread is down -1 basis point to 9 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +6 basis points to 2.34%, which is down -31 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is unch. today. Small-cap and cyclical shares are outperforming again today. HMO, Disk Drive, Alt Energy, Retail, Semi, Computer and Hospital shares are especially strong, rising 1.5%+. (XLF) appears to be basing after opening gains. The US dollar continues to trade well and gold is breaking convincingly below its 50-day moving average. On the negative side, Chinese stocks continue to trade poorly. While the recent rise in long-term rates and inflation expectations are healthy so far, at some point next year a continuation of these accelerated increases would become problematic for stocks. Fed members that are talking too dovish right now are making a mistake, in my opinion. More hawkish rhetoric would likely keep inflation expectations and long-rate increases contained, without doing harm to the economy or stocks. I still expect the S&P 500 to break convincingly higher out of its recent trading range over the coming days. Nikkei futures indicate an +123 open in Japan and DAX futures indicate an -6 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less financial sector pessimism, short-covering, buyout speculation, less economic fear, technical buying and seasonal strength.