Stocks Reversing Morning Losses into Final Hour on Short-Covering, Less Financial Sector Pessimism, Earnings Optimism

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 18.12 -1.31%
  
• ISE Sentiment Index 134.0 +25.23%
  
• Total Put/Call .91 +7.06%
  
• NYSE Arms .57 -80.94%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 89.40 bps +5.85%
  
• European Financial Sector CDS Index 87.84 bps +12.0%
  
• Western Europe Sovereign Debt CDS Index 93.83 bps +2.84%
  
• Emerging Market CDS Index 209.52 bps -.86%
  
• 2-Year Swap Spread 15.0 bps -1 bp
  
• TED Spread 16.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 282.0 bps unch.
  
• China Import Iron Ore Spot $179.40/Metric Tonne +.73%
  
• Citi US Economic Surprise Index +23.80 -4.2 points
  
• 10-Year TIPS Spread 2.33% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +17 open in Japan
• DAX Futures: Indicating +26 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech and Tech long positions
  
• Disclosed Trades: Covered all (IWM)/(QQQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as stocks reverse morning losses to trade at session highs despite mostly negative headlines. On the positive side, HMO, I-Bank and Bank stocks are especially strong, rising .75%+. Oil is falling -1.3% on worries over the ramifications of the (GS) charges, European sovereign debt concerns and China hard-landing fears. (XLF) has outperformed throughout most of the day. On the negative side, Coal, Oil Tanker, Computer, Airline, Gaming and Alt Energy shares are substantially underperforming, falling 1.0%+. The Greece 10-year/bund spread is surging +8.0% to 461 basis points. The Greece sovereign cds is jumping another +5.8% today and the surge in the euro financial sector cds is another large negative. Investor angst gauges are still registering near-term complacency. Given the news, I am very surprised the market is holding up as well as it is again today. This resilience is noteworthy. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, eurozone sovereign debt worries, eurozone economic slowdown concerns and china hard-landing fears.