Stocks Slightly Higher into Final Hour on Less Financial Sector Pessimism, Diminishing Economic Fear, Falling Sovereign Debt 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 added to my (ASEI) long this morning and took profits in another long, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is about even, most sectors are rising and volume is slightly above average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling -2.43% and is above average at 18.88. The ISE Sentiment Index is around average at 146.0 and the total put/call is below average at .68. Finally, the NYSE Arms has been running above average most of the day, hitting 1.47 at its intraday peak, and is currently .76. The Euro Financial Sector Credit Default Swap Index is falling -4.67% to 58.98 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 -2.54% to 78.70 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is up +1 basis point to 20 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is falling -2.23% to 27.38 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 +4 basis points to 2.41%, which is down -24 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .05%, which is down -1 basis point today. There are an unusual number of stocks rising on above-average volume again today for a flat broad market. The MS Cyclical Index is rising +1.04%. Education, Homebuilding, Construction, Bank, Steel, Gold, Ag, Energy, Oil Tanker and Coal shares are especially strong, rising 1.0%+. (XLF) is trading well again today as the euro financial sector cds index drops to the lowest level since May 2008, which is a large positive. The Western European Sovereign Debt Credit Default Swap Index is dropping another -3.13% to 64.47 basis points, which is also a large positive. On the negative side, select tech leaders are relatively weak again and oil continues to grind higher. Despite the major averages consolidating recent gains, I continue to see a number of small/mid-cap stocks stage technical breakouts on volume. This is a healthy development. Nikkei futures indicate an +140 open in Japan and DAX futures indicate an +2 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, buyout speculation and less financial sector pessimism.