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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs, Biotech longs and Emerging Market shorts. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is above-average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling -1.91% and is above-average at 24.09. The ISE Sentiment Index is slightly below average at 133.0 and the total put/call is high at 1.06. Finally, the NYSE Arms has been running around average most of the day, hitting 1.18 at its intraday peak, and is currently .76. The Euro Financial Sector Credit Default Swap Index is rising +5.33% to 77.40 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 +3.62% to 97.09 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 18 basis points. The TED spread is now down 445 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is falling -13.45% to 24.94 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -2 basis points to 2.31%, which is down -34 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .06%, which is unch. today. Emerging market and cyclical stocks are underperforming today. Credit default swap indices are surging again. The Western Europe Sovereign CDS Index is +10.87% to 87.30 bps. On the positive side, Oil Tanker, Semi, Wireless, Bank, I-Bank, Biotech, Insurance, REIT and Education shares are especially strong, rising 1.0%+ today. Market leading stocks are outperforming. Considering the equity declines overseas, sovereign debt concerns, weaker economic data, Geithner’s testimony and political apprehension ahead of tonight’s SOTU address, today’s reversal is impressive. (XLF) trades well today and (AAPL) is rising, which is unusual on a major product announcement day. If the President’s speech tonight isn’t too negative towards business, I stocks will build on today’s gains tomorrow. Nikkei futures indicate an +103 open in Japan and DAX futures indicate an +33 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism, bargain hunting and tech sector optimism.