Stocks Slightly Higher into Final Hour on Less Economic Pessimism, Lower Long-Term Rates, Technical Buying, Tech Sector Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is higher, sector performance is mixed and volume is slightly above average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling -3.36% and is above average at 18.42. The ISE Sentiment Index is around average at 150.0 and the total put/call is below average at .64. Finally, the NYSE Arms has been running very high most of the day, hitting 1.72 at its intraday peak, and is currently 1.50. The Euro Financial Sector Credit Default Swap Index is rising +3.23% to 57.84 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 +.78% to 77.81 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 21 basis points. The TED spread is now down 442 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is falling -.90% to 27.63 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 +1 basis point to 2.45%, which is down -20 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .04%, 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. Tech leaders, which had been under pressure the last few days, are reversing higher today. Economically sensitive shares are substantially outperforming, with the MS Cyclical Index rising .83%, despite the disappointing jobs report. Food, Road & Rail, Hospital, Semi, Steel, Oil Service and Oil Tanker shares are especially strong, rising 1.5%+. Even though the major averages are just slightly higher over the last few days, a number of small/mid-cap stocks are breaking out and posting significant gains. Oil Tanker rates are up 40.0% this week to 52.50 worldscale. On the negative side, (XLF) and (IYR) are underperforming and oil reversed higher despite weaker economic data. Consumer Credit fell a record -$17.5B in November, which I view as a positive, considering the improvement in retail sales during that period. The jobs report was a bit disappointing, but it will likely calm inflation expectations and imminent Fed hike worries. The 10-Year CMBS/AAA spread fell another 6.1% this week, which is a large positive. I suspect the major averages will build modestly on this week’s gains next week. Nikkei futures indicate an +67 open in Japan and DAX futures indicate an +3 open in Germany on Monday. 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, tech sector optimism and buyout speculation.