Stocks Slightly Higher into Final Hour on Less Financial Sector Pessimism, Lower Long-Term Rates, Declining Sovereign Default Worries

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Biotech longs, Retail 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 lower, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling -1.9% and is above average at 19.67. The ISE Sentiment Index is slightly above average at 156.0 and the total put/call is below average at .70. Finally, the NYSE Arms has been running below average most of the day, hitting .4 at its intraday trough, and is currently .67. The Euro Financial Sector Credit Default Swap Index is falling -3.63% to 61.81 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 -2.43% to 80.75 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 19 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is rising +1.89% to 28.13 basis points. The Libor-OIS spread is up +1 basis point to 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -4 basis points to 2.37%, which is down -28 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .06%, which is up +1 basis point today. There are an unusual number of stocks rising on heavy volume today for a flat broad market. Broad market volume is much better today, as well. Airline, Gaming, Bank, Paper, Ag, Oil Service, Coal and Oil Tanker shares are especially strong, rising 1.5%+. (XLF) is trading well again today, which is a large positive. Moreover, (IYR), which has been a recent underperformer, is putting in an intraday reversal and is trading at session highs. The Western European Sovereign Debt Credit Default Swap Index is dropping 6.05% to 66.21 basis points, which is the largest one-day drop since the instrument began trading in early Oct. and also a large positive. Oil tanker rates are jumping 27% to 47.50 worldscale, which is boosting the group. Finally, it is a big positive to see long-term rates dropping despite less economic fear and tremendous supply. On the negative side, select tech leaders are relatively weak and oil continues to grind higher. Nikkei futures indicate an +135 open in Japan and DAX futures indicate an +8 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic fear, technical buying, lower long-term rates, buyout speculation and less financial sector pessimism.